A conglomerate with three B2B segments
Aspo’s outlook worsened this spring, and Q2 results fell below reduced estimates. ESL and Telko face their own issues, but the challenges are largely temporary in nature.
ESL and Telko had issues which burdened profitability
Aspo’s EUR 133m Q2 revenue was a bit soft relative to the EUR 143m/138m Evli/cons. estimates, while the EUR 3.6m adj. EBIT fell clearly short of the EUR 6.5m/6.5m Evli/cons. estimates due to especially because of ESL’s challenges but also because of the hit Telko endured as market prices dropped (down 40% y/y in some plastics categories). Increased Asian imports restrained volumes in the case of plastics, but overall Telko’s demand outlook stays good. ESL was hit by Supramax losses while demand for the smaller core vessels remains rather stable albeit at a lower level of volumes this year; the demand softness is due to the key industries, steel and forest, which make more than 50% of volumes. Leipurin performed pretty much as expected.
We expect modest improvement in conditions for H2
Aspo’s guidance implies EBIT in the range of EUR 13-23m for H2; Q3 will improve a bit q/q but will still not be great. ESL’s demand and Telko’s market prices are the main drivers, meaning Aspo could still reach the upper end of the range should the situation begin to improve soon. We estimate ESL’s FY ’23 EBIT at EUR 22m, a steep drop relative to the EUR 37m comparison figure but also likely to be the trough before ESL’s fleet expands with green coasters. The Supramaxes will be sold, and ESL’s market opportunity is set to grow long-term thanks to significant industrial investments on both sides of the Bothnian Bay. Telko still pursues European M&A despite the market challenges.
This year is likely to set quite low comparison figures
We estimate adj. EBIT of EUR 28.7m for the year; the respective above 12x EV/EBIT multiple represents a somewhat elevated level as both ESL and Telko are likely to generate quite soft figures for the year. We believe Aspo has a fair chance of reaching above EUR 35m EBIT again next year as the recent troubles of ESL and Telko are largely temporary in nature and Leipurin proceeds according to plan. Aspo is then valued around 9x EV/EBIT on our FY ‘24 estimates, which we consider a fair level. Our new TP is EUR 7.0 (8.0) as we revise our EBIT estimates down by some 10-15% for this year and next. We retain our HOLD rating.
Aspo’s Q2 results fell short of estimates especially due to the loss-making Supramax vessels and certain other dry bulk market challenges, while Telko’s business suffered from declining prices.
Q1 showed weakening for ESL this year, yet the guidance downgrade and recent Supramax comments indicate larger short-term headwinds than seen only a while back.
Issues with larger and smaller vessels; Handysize performs
Aspo cut guidance shortly after Q1 report as Q2 seems weaker than earlier expected and especially as ESL’s FY ’23 outlook has turned even softer after a record-year. The market for Supramaxes has weakened for a while, but their current drag on profitability seems larger than estimated before. Coasters’ profitability suffers from higher rental costs as well as capacity issues, in addition to which Q2 and Q3 dockings will have further impact, however Handysize vessels still seem to perform stable this year. The hybrid Coasters should add some earnings already next year; the outlook for Supramaxes has likely improved by FY ’24, however ESL is set to divest its two vessels soon and use the proceeds to help fund expansion within the Handysize segment as Northern Sweden by itself should see more than SEK 1,000bn in industrial investments over the next 20 years.
We estimate ESL’s EBIT to decline by a third this year
We previously estimated ESL’s FY ’22 EBIT of EUR 37m to decline to EUR 30m this year; our new EUR 25m estimate stands quite well in line with the only “normal” level of FY ‘21 for ESL’s current fleet structure as the past years’ investments first had to weather demand challenges (as well as technical issues) before and early in the pandemic, whereas last year’s result proved simply too high to sustain with current capacity levels. In our view ESL’s profitability (and capacity excluding the Supramaxes) should improve at least modestly next year so long as demand stays roughly stable around current levels. We now estimate ESL FY ’24 EBIT at EUR 30.0m (prev. EUR 31.5m).
Not too expensive, but ESL’s softness limits near potential
We leave our Leipurin estimates unchanged, whereas we make small downward revisions to our Telko estimates. Aspo’s organic profitability development should stabilize going towards next year, assuming no larger demand headwinds prevail. EUR 40m hence appears a realistic EBIT level again next year; the corresponding 8.5x EV/EBIT isn’t that high, but this year’s softness raises the multiple to 11x and limits upside potential. Our new TP is EUR 8.0 (9.5); our rating is now HOLD (BUY).
Aspo’s Q1 results came in quite close to estimates. ESL’s outlook for the year has softened a bit more than we previously estimated, but new vessel investments should take the carrier to a whole new level in the coming years.
Overall Q1 results didn’t show any particular large surprises
Q1 revenue from cont. operations grew 10% y/y to EUR 142m, driven by the Kobia acquisition and Telko’s 7% growth excl. Russia and Belarus. The EUR 148m top line, incl. non-cont. operations, was soft vs the EUR 160m/152m Evli/cons. estimates. ESL’s EBIT declined to EUR 6.0m, missing our EUR 8.5m estimate, due to lower volumes. Meanwhile Telko’s EUR 2.7m EBIT was clearly above our EUR 1.9m estimate; EUR 10m annual EBIT shouldn’t be too hard to achieve as recent M&A is yet to reach full earnings accretion. Leipurin bottom line developed well, as expected, and the overall EUR 8.5m EBIT came in relatively close to the EUR 9.7m/8.8m Evli/cons. estimates. Our updated EBIT estimate for the year stands at EUR 39.7m (prev. EUR 42.4m).
FY ’23 somewhat softer for ESL, but the fleet will grow
The Kobia deal is delivering according to plan and Telko’s EBIT is stabilizing around a 5% margin after the Russian exit, while M&A should continue to contribute. ESL sees lower volumes this year, yet pricing holds up. We thus expect EBIT to hold around EUR 40m, in the short and medium term, for the current operations. Large industrial investments around the Baltic Rim will expand ESL’s market in the future. ESL seems well-placed to capitalize on a big cargo increase, and we believe its plans will involve several new Handysize vessels. ESL will soon begin to receive its own (and pooled) Coaster hybrid vessels, but the EUR 150m investment is likely to be topped by the long-term opportunity. The move will require measures such as divesting the Supramaxes, new external minority equity and vessel pooling.
10x EV/EBIT isn’t high as all three are to grow long-term
ESL’s fleet is to grow by a significant amount over the long-term and the new assets will further solidify its position. The moves add to ESL’s value attributable to current shareholders, but the magnitude of the positive is hard to gauge due to the open size of the investment and financing required. Meanwhile Aspo is valued 10x EV/EBIT on our FY ’23 estimates, a level we don’t view too challenging. We retain our EUR 9.5 TP and BUY rating.
Aspo’s Q1 results were a bit lower than estimated. We find there to have been mixed development underneath as Telko on the one hand beat our estimates while on the other ESL’s profitability softened more than we had estimated.
Aspo’s Q4 didn’t hold big news, however the segments’ EBIT paths may diverge a bit this year after a very strong FY ’22.
ESL and Leipurin topped our estimates, while Telko was soft
Aspo’s Q4 revenue landed at EUR 165m, compared to the EUR 157m/158m Evli/cons. estimates, while adj. EBIT was EUR 11.3m vs the EUR 12.1m/11.7m Evli/cons. estimates. The figures were hence overall relatively close to estimates, however Telko’s profitability was clearly below what we estimated whereas ESL and Leipurin were both somewhat better. Telko saw certain positive developments in Q4 as strong Western demand drove higher volumes organically and through acquisitions; lubricants also fared well, but plastics and chemicals prices decreased, in addition to which the challenging operating environment in Ukraine, Russia and Belarus limited profitability.
We already expected considerable EBIT decline for Telko
In our view Telko’s EBIT should begin to stabilize in H1’23 but will not reach the EUR 21m EBIT seen in recent years anytime soon. Aspo’s guidance doesn’t seem to set the bar for Telko very high, which in our view reflects the still highly uncertain environment for pricing and volumes. We previously expected Telko’s FY ’23 EBIT to decline some EUR 10m, and we now estimate the decline at EUR 11.5m. ESL’s outlook remains stable, at least for Q1 when the Supramaxes are still employed with good price levels, but it’s early to say how they might fare in H2’23. Smaller vessels should still have no trouble achieving highly satisfactory results, yet it may be hard to gain on last year. We expect ESL’s EBIT to decline a bit this year, but some of the new hybrid vessels are due to be delivered soon and hence EBIT should find further support even in the case of extended pricing headwinds. The Kobia acquisition’s synergies weren’t yet reflected last year, and hence we expect Leipurin EBIT to increase this year even if inflation and volume trends set some limits to organic development.
Valuation not challenging despite EBIT softness this year
Aspo is valued ca. 9x EV/EBIT on our FY ’23 estimates, which we see reflects relatively low valuation for ESL. An EV/EBIT multiple of 10x could be justified for the niche carrier as Algoma Central, arguably the most relevant peer, is valued above 10x as it derives a big share of its earnings through small dry bulk vessels around the Great Lakes region. We retain our EUR 9.5 TP and BUY rating.
Aspo’s Q4 results landed relatively close to estimates. ESL once again produced very high profitability, and outlook continues to be strong, while Telko’s profitability has decreased considerably after H1’22.
Aspo achieved again very high profitability, this time even with Russia mostly neutralized. This year makes for tough comparison figures, but valuation isn’t that demanding.
Telko and Leipurin close to estimates, ESL drove the beat
Aspo’s EUR 160m in Q3 revenue and EUR 13m adj. EBIT were both roughly 15% above the respective Evli/cons. estimates. Telko and Leipurin developed relatively close to our estimates, at least in terms of profitability, while ESL’s continued strong performance explained a large part of the earnings beat. ESL has improved a lot in recent years due to both better operational efficiency and market conditions; the latter factor may not provide much more tailwind going forward, while the former still has potential especially in the long run. ESL’s niche positioning means overall cargo demand and pricing environment remains stable even if global spot markets have recently softened. Telko had already close to zero EBIT contribution from Russia and Belarus while the respective top line declines were roughly 40-50%. Leipurin exit process may lag that of Telko a bit, but Aspo’s key figures are already relatively clean of Russia.
ESL and Telko Q3 figures are high but largely sustainable
Telko’s Western EBIT has remained strong y/y and q/q thanks to its focus on more value-added categories. Telko’s EUR 3.7m Q3 EBIT implies an annual run-rate of close to EUR 15m; in our view the current market environment is more likely to soften than strengthen, but for now Telko’s demand and pricing situation stays relatively stable. We continue to estimate Telko’s FY ’23 EBIT at above EUR 13m. ESL has further long-term tailwinds thanks to its specialized positioning as a critical Baltic player; improved route optimization could still support EBIT in the short-term despite high comparison figures, while the hybrid vessels and their pooling will naturally add to long-term EBIT potential. We expect only a small ESL EBIT decline for FY ’23.
Telko H1 figures imply above EUR 10m EBIT gap for FY ‘23
We estimate Q4 EBIT at EUR 12.1m and believe Aspo is headed close to the upper end of its current guidance range. FY ’23 EBIT is thus very likely to decline after an extraordinary year. We make very little changes to our respective EUR 44.5m estimate. We still don’t view Aspo’s current EV/EBIT multiples of around 8x that challenging. We retain our EUR 9.5 TP and BUY rating.
Aspo’s Q3 results topped estimates. In our view the beat was driven by ESL, where Q3 was again a very strong quarter.
Aspo upgraded its FY ‘22 guidance, thanks to ESL’s continued strong performance, and gave an update on exits. We continue to see FY ’23 EBIT well above EUR 40m.
The guidance upgrade, due to ESL, wasn’t a major surprise
Aspo’s upgraded guidance has a midpoint of EUR 54.5m as ESL will continue to drive high profitability also in H2. We view ESL’s current operating environment relatively normal in the sense that the war has had only a very limited impact (we note ESL’s performance is not sensitive to raw materials price changes), however it should also be noted the dry cargo market has gained strength since H2’20 and ESL may now have reached a point where it’s not easy to improve without additional capacity; short term outlook remains strong, while some softening may be due in the medium term. The hybrid vessel investments will support long term profitability potential. The Baltic Dry Index is down by double digits from its recent highs, but this may have only muted implications for ESL due to its differentiated positioning compared to large global dry bulk cargo carriers.
We make only small upward estimate revisions
Aspo disclosed progress regarding Telko’s Russian exit, for which the company is set to receive some EUR 9.5m from a local industrial buyer after the authorities have approved the deal. An exit from Belarus is also in the works. Leipurin is similarly in the process of looking for an exit, but in our view the integration with Kobian is a more significant short to medium term development. We previously estimated EUR 52.7m for FY ’22 adj. EBIT and our revised estimate stands at EUR 55.1m. Our updated estimate for next year is EUR 44.4m (previously EUR 43.4m). Leipurin’s EBIT will likely continue to improve thanks to the Kobian deal, whereas we estimate ESL’s EBIT to decline by some EUR 3m next year. In our view Telko’s H2’22 and FY ‘23 performance remains the biggest question mark as possible price declines could hit margins along with lower volumes.
Valuation not challenging on our ca. EUR 45m FY ’23 EBIT
We expect FY ’23 EBIT to remain well below EUR 50m, mostly due to Telko’s softening, but the below 8x EV/EBIT valuation levels are not that challenging especially when Telko and Leipurin continue to tilt West and ESL still has long term potential left thanks to its upcoming investments. We retain our EUR 9.5 TP and BUY rating.
Aspo’s record high H1 results are to face headwinds in H2, but in our view EBIT may well stay above EUR 40m also next year thanks to ESL and developments in Leipurin.
Telko especially will meet headwinds in H2 and FY ‘23
Aspo’s Q2 revenue grew by 16% y/y to EUR 161m vs the EUR 142m/148m Evli/cons. estimates. All segments hit revenues above our estimates, and the EUR 16.0m adj. EBIT clearly topped the EUR 9.3m/9.5m Evli/cons. estimates. H2 has typically been Aspo’s stronger half in terms of profitability but this year will be different, however the company seems headed close to EUR 50m FY ‘22 EBIT despite some softening in H2. It’s still very early innings in terms of Aspo’s updated compounder strategy, but the company appears poised to make further progress with M&A as well as ESL’s vessel pooling partnership.
ESL and Leipurin to deliver robust results in H2 and FY ‘23
ESL may not improve next year given the EUR 17m adj. EBIT in H1’22, yet outlook remains strong enough so that we wouldn’t expect a large EBIT decline either. Meanwhile Telko’s quarterly EBIT has recently jumped to the EUR 7-8m ballpark, compared to earlier levels of EUR 4-5m before raw materials prices shot up. Telko’s H2’22 EBIT may stay relatively high as most prices are yet to decline, but there’s a risk of reversion to more moderate levels by next year. Telko has many different product categories, and the overall price outlook appears stable although the risks tilt more towards downside. Telko has also placed more Western volumes recently, and against this backdrop our ca. EUR 4m quarterly EBIT estimates seem conservative. Leipurin closes the Kobia acquisition on Sep 1, which adds to our estimates in addition to the recent relatively strong organic performance.
Valuation continues to be undemanding
Our estimate revisions for H2’22 and FY ’23 come in relatively small. We estimate H2’22 EBIT at EUR 21.4m (prev. EUR 20.2m), while we see FY ’23 EBIT at EUR 43.4m (prev. EUR 39.0m). The increases are especially due to Leipurin as the company is making progress with its acquisition as well as the divestiture of the machinery business. Multiples are still not demanding, despite the inevitable short to medium term softening in EBIT, as Aspo is valued only around 8x EV/EBIT on our FY ’23 estimates. We update our TP to EUR 9.5 (8.5); we retain our BUY rating.
Aspo’s Q2 results were broadly higher than expected as all three segments reached record-high quarterly profitability levels. ESL’s H2 looks to remain strong, while Telko needs to manage with decreasing top line due to the exit from Russia.
Aspo’s guidance upgrade arrived sooner than we expected.
Adj. EBIT will top the EUR 42.4m figure seen previous year
Aspo’s upgrade didn’t come as a big surprise since the guidance appeared to be on the cautious side after strong Q1 results, however the update materialized at least a few months before we would have expected. In our view there have been no major news regarding ESL’s and Telko’s development since the Q1 report, but the dry cargo shipping business is still likely to see additional improvement from last year despite high uncertainty around macroeconomic trends. Telko’s Q1 results happened to benefit from the war’s effects as high plastics and chemicals prices helped adj. EBIT margin to 11.3%, likely an unsustainable level in the long run as high costs already had some impact on customers’ operations in Q1. Short-term profitability outlook remains favorable for ESL and Telko as the former is set to near EUR 30m EBIT while the latter continues to operate in an inflationary environment in the short and medium term.
M&A will add on top of Western organic opportunities
We estimate Aspo to reach EUR 44m in adj. EBIT this year (prev. EUR 34m). We believe Telko will see some softening in margins in the medium term and hence we wouldn’t expect improvement in EBIT for next year. The impending exit from Russia and Belarus limits overall organic growth rate, although Western markets should be able to make up some of the lost volumes. Telko also continues to look for M&A targets, while Leipurin just announced a major acquisition in Sweden. The target, a bakery distributor called Kobia, seems a great fit for Leipurin and is in line with Aspo’s Western M&A aims. The EUR 50m business isn’t that big in the Aspo context but is a significant move for Leipurin and profitable with a 3% EBIT margin. We are yet to include the acquisition in our estimates, but it should close in a few months. In our view the acquisition underlines Aspo’s commitment to Leipurin as M&A focus has often seemed to be around Telko.
Valuation is undemanding in the light of EUR 40m EBIT
Aspo’s EBIT is likely to remain around EUR 40m in the coming years. It may be hard to significantly improve from that level considering the already favorable market outlooks, but we view valuation undemanding as our SOTP suggests equity value closer to EUR 10 per share. We retain our EUR 8.5 TP and BUY rating.
Aspo’s Q1 results beat estimates. Uncertainty persists around H2, but we are now more confident towards Telko.
Q1 figures in fact gained from the turbulence
Aspo’s Q1 revenue was driven to EUR 160m, compared to the EUR 132m/136m Evli/cons. estimates, by Telko’s high EUR 76m top line. We had estimated EUR 58m, and the figure was lifted by the extraordinary inflationary environment created by the war. Telko’s markets’ normalization is now postponed. Telko’s adj. EBIT reached EUR 8.6m, and Aspo’s EUR 10.3m EBIT was clearly above the EUR 8.0m/7.6m Evli/cons. estimates while there were EUR -4.9m in items affecting comparability. ESL’s performance didn’t come as a big surprise as it was known the war will have little direct impact on the dry bulk business.
We reckon Telko’s long-term potential hasn’t diminished
There are many moving parts but Q1 was overall a lot better than was estimated as the environment lifted prices and for that part supported the two raw material distributors. The war thus caused a short-term boost for Telko and Leipurin, but downscaling creates uncertainty particularly around H2. Leipurin will exit Russia, Belarus and Kazakhstan, which account for almost EUR 30m in revenue. Telko is reviewing possibilities to exit Russia, and we understand some 30% of Telko revenue may be affected. The closure is thus significant, but we understand its impact on margins will be modest. Telko’s long-term 8% EBIT target should remain relevant. We see Telko’s FY ’23 revenue down 20% from Q1’22 LTM; uncertainty hangs around the figure for the next few quarters, but we believe it shouldn’t take Telko too long to again reach EUR 15m EBIT. Demand for ESL’s handysize vessels temporarily softens in Q2 as customers adjust to the Russian situation, but larger vessel demand could compensate for this.
In our opinion valuation neglects Telko’s potential
Our estimate revisions are relatively small on an annual level. There are still many questions around Telko’s performance going forward, but the Q1 results were encouraging and in our view possibility for a positive guidance revision has increased. We view an EBIT of about EUR 40m a relevant possibility again in the coming years, which would correspond with the roughly EUR 30m and EUR 15m long-term EBIT levels for ESL and Telko. Our new TP is EUR 8.5 (8.0), and our rating is now BUY (HOLD).
Aspo’s Q1 results clearly topped estimates, however the previous full-year guidance is retained for now as much uncertainty persists around Telko’s H2.
Aspo resumed guidance relatively fast due to ESL’s current strong positioning, however much uncertainty remains around Telko’s performance in the coming few quarters.
ESL’s market outlook remains very favorable for now
Aspo reinstated guidance after a month-long hiatus. The war necessitated its withdrawal as the CIS countries generated a combined EUR 155m in FY ’21 revenue for Telko and Leipurin. The situation causes uncertainty around their physical operations, while the acceleration in inflation poses both risks and opportunities for the raw material distribution businesses. ESL’s outlook has however remained favorable, and we continue to expect EUR 29.9m EBIT for this year. The dry bulk cargo market doesn’t seem to soften despite talks of Western stagflation. Cargo volume outlook still appears robust while freight rates are improving. In our view Aspo can now base its new EUR 27-34m EBIT guidance on ESL’s strength, while uncertainty lingers especially around Telko in Russia and Ukraine as well as the Leipurin Russian business.
We cut our Telko EBIT estimate by EUR 2.7m to EUR 7.4m
We revise our top line estimate for this year down from EUR 558m to EUR 541m. Our EBIT estimate is down to EUR 32.4m from EUR 35.5m, and we also make some downward revisions for the coming years, roughly to the tune of EUR 2m. It’s unclear how much further ESL’s performance can improve in the short to medium term, but the company continues to focus on its small vessel strategy as before and is set to receive the new hybrid vessels in the coming years. Telko and Leipurin have increasingly focused on Western markets in the past few years; the Russian challenges will organically hasten this development, and Telko is also likely to add some Western operations through M&A.
Telko could potentially drive upside later this year
Aspo is valued closer to 11x EV/EBIT on our FY ’22 estimates. Telko’s implied value remains low while ESL shoulders a major part of estimated EBIT this year. Aspo’s current valuation still reflects considerable caution and could turn out to be too low if Telko manages to perform better than expected in the coming few quarters. We believe the EUR 7m difference between the lower and upper points of the guidance range is mostly due to Telko. We retain our EUR 8 TP; our new rating is HOLD (BUY).
The war raises questions around Telko and Leipurin, but we view the recent sell-off a bit overdone despite the risks.
The crisis affects Telko and Leipurin in various ways
Aspo withdrew guidance as the war in Ukraine and situation in Russia limit visibility. The uncertainty directly concerns Telko and Leipurin, while ESL ships only limited amounts of cargo from Russia and hence the situation affects the dry bulk business mostly indirectly. Russia and other CIS countries, including Ukraine, amounted to EUR 155m in FY ’21 Aspo revenue. Telko and Leipurin both distribute basic raw materials and have managed to navigate challenging market conditions before, but the full-scale war and dismal prospects for the Russian economy mean the hit is bound to be larger this time. Both companies are asset-light i.e. inventories and trade receivables constitute their assets. There is also no dependency on any large customer accounts. The Russian sanctions shouldn’t concern Leipurin that much as the company sources for the most part local raw materials; Telko is more vulnerable in this sense as it connects small local customers with Western principals.
We revise our FY ’22 EBIT estimate down by EUR 7.9m
We leave our FY ’22 estimates for ESL unchanged at this point, however we revise our revenue estimates for Telko and Leipurin down by a combined EUR 50m. In our view Leipurin will be especially affected by the Russian end-market challenges as the local consumers struggle with hyperinflation. The situation is a lot more unclear for Telko as e.g. elevated oil prices lift raw materials prices, which by itself should support margins. Our new FY ’22 EBIT estimate for Telko is EUR 10.1m (prev. EUR 16.8m) and EUR 1.1m for Leipurin (prev. EUR 2.3m). We note Telko also operates in 13 other countries besides Russia and Ukraine.
In our view Telko is now undervalued despite the risks
There are no very useful peer multiples as the strong global dry bulk earnings translate to multiples which we view too low to be applied to ESL. In our view ESL is worth close to EUR 350m, or some 11-12x EBIT. This would imply the current valuation puts very little value on Telko; there are risks, but the EUR 155m CIS revenue represents 41% of the FY ’21 combined Telko and Leipurin revenue. We thus view the recent sell-off somewhat overdone. Our new TP is EUR 8 (14); we retain our BUY rating.
Aspo’s Q4 adj. EBIT reached EUR 13.9m; we believe ESL’s and Telko’s results are resilient while the guidance doesn’t appear to set the bar very high either for H1 or H2.
Q4 adj. EBIT was very high, outlook still favorable for H1’22
Aspo Q4 revenue grew by 27% y/y to EUR 160m, somewhat above the EUR 153m/148m Evli/cons. estimates. The EUR 13.9m adj. EBIT was clearly above the EUR 10.8m estimates. Aspo’s H2’21 involved, in essence, a couple of positive profit warnings as there were a few impairment losses which burdened the headline EBIT. The cargo market situation was well-known and hence another record ESL EBIT was in the cards; we expect some long-term pressure on the 16.5% ESL H2 EBIT margin, although based on Aspo’s comments there shouldn’t be any imminent negative factors. Forest, steel, and energy industries continue to drive robust cargo volumes also in H1’22. Telko’s EBIT was a bit soft relative to our estimate but still amounted to a very decent 6% margin. Leipurin recorded an impairment loss of EUR 4.3m, but other than that the results were much as we expected.
We estimate EBIT well above EUR 40m in the coming years
The spot market for large vessels has slipped a bit from the recent tops, yet ESL’s focus means results should be resilient even in the face of a marked drop. The geopolitical tensions, should they happen to escalate, would cast some uncertainty around the short-term performance of Telko and Leipurin, but in our view any major long-term adverse effects would be unlikely given the fact that both have a history of operating in challenging Eastern European countries. In our opinion the flat EBIT guidance appears conservative, especially considering the relatively undemanding H1’21 comparison figures and the fact that ESL’s strong H2’21 performance should extend itself well this year. We make only minor estimate revisions; our new FY ’22 EBIT estimate is EUR 43.4m (prev. EUR 42.4m).
Modest multiples given the guidance and LT positioning
We find Aspo’s current valuation level undemanding, not much more than 6x EV/EBITDA and 10x EV/EBIT on our FY ’22 estimates, especially when we view a positive profit warning much more likely than a negative one. We believe ESL can well beat our estimates and our 5.8% EBIT estimate for Telko isn’t that high either. We retain our EUR 14 TP and BUY rating.
Aspo’s headline EUR 8.8m Q4 EBIT missed estimates, however the shortfall stemmed from Leipurin’s EUR 4.3m impairment loss. Telko’s EBIT was a bit soft relative to what we expected, but ESL topped our estimate by a considerable margin.
Aspo held its CMD, where the key message was that focus is more towards add-on M&A as opposed to exits (except for the sale of Kauko and Leipurin’s Vulganus machines).
EBIT margin target raised to 8% from the previous 6%
Aspo’s EBIT has gained a lot in the past year. Telko already had a strong ‘20, while the recovery has come through in ESL’s figures this year. The revised ESL and Telko EBIT targets, both up by 200bps to 14% and 8% respectively, are thus not very surprising. Aspo introduced a 5-10% p.a. growth target, and we view this the major update because it signals a commitment to hold and grow Telko. We make upward estimate revisions to reflect the targets. ESL reached a 15% EBIT in Q3, and while demand remains strong, we believe the next quarters will see some softening since AtoB@C time charter costs are growing. ESL’s performance is otherwise solid (e.g. contracts are better optimized from a logistics POV), and it has retained an advisor to source investors for a portion of the hybrid vessel capex. Leipurin retains its 5% EBIT target. There’s still way to go until the target is reached, but Leipurin has a profit boost initiative (e.g. category management) while the Food Industry is a good growth driver.
Aspo remains very committed to Telko and exit is unlikely
Aspo’s new 5-10% growth target reflects especially Telko add-on M&A potential. There’s no major change in the sense that Eastern performance is to rely on organic growth, but it seems Telko is now ready for somewhat larger deals should a fitting target come up for sale. Telko’s own profitability is already running so high that not every acquisition will provide an immediate boost to EBIT margin. The geographic scope has also been expanded a bit westward beyond the Nordics and Baltics. Aspo remains committed to the current three segments within logistics (ESL) and trade (Telko & Leipurin), however a new stand-alone subsidiary with an EV of some EUR 20-50m is also likely (B2C targets are not off the table). Aspo’s focus is still to hold and grow its segments without any definite exit plans/schedules.
Earnings growth outlook is attractive
We now expect FY ’22 EBIT margin at 7.0%, or EUR 42.4m (prev. EUR 40.9m). This represents an EV/EBIT of only about 11x, and there’s still further earnings potential in the following years. We retain our EUR 14 TP. Our rating is now BUY (HOLD).
Aspo’s Q3 EBIT was EUR 12.8m without the one-offs. Valuation is still not very high as we see scope for well above EUR 40m EBIT next year, but we consider multiples neutral. Our TP is EUR 14.0 (12.5), rating HOLD (BUY).
There were some EUR 5.2m in one-off Q3 items
ESL posted a record EUR 7.1m Q3 EBIT vs our EUR 4.5m estimate. The market is very favorable as cargo volumes grew by 26% y/y and freight rates are now good across the entire fleet. In our view the Supramaxes are already generating very high margins, while smaller vessels’ pricing should continue to advance from here on. Leipurin results were a bit better than we expected, while Telko achieved EUR 5.9m EBIT (vs our EUR 4.9m estimate) excl. the EUR 3.4m Kauko impairment. There was also the EUR 1.75m one-off item due to the CEO change-related costs.
Strong performance should continue for quite some time
We revise our estimates and now see EUR 10.8m in Q4 EBIT (prev. EUR 9.8m). The guidance constitutes in essence a positive revision and we wouldn’t be surprised to see Aspo upgrade the range more in the coming months (Q4 hasn’t historically paled in comparison to Q3). Port logistics challenges may limit ESL’s Q4 potential, but we view our EUR 6.5m EBIT estimate conservative. ESL and Telko now enjoy very favorable markets, therefore some softening could be due next year. Both subsidiaries nonetheless continue to progress strategy-wise. ESL’s new EUR 70m investments (financing will be some combination of own cash and external pooled funds) are to be ready in ’23 and we view the six small hybrid vessels a good strategy fit. Meanwhile Telko continues to focus on higher margin solutions with its latest acquisition of a small Estonian lubricant distributor.
FY ’22 EBIT should have no trouble topping EUR 40m
Our new FY ’22 EBIT estimate is EUR 40.9m (prev. EUR 39.7m), and on this basis Aspo is valued ca. 13x EV/EBIT. The level is not that high considering cash flow generation and further value creation potential yet reflects present strong conditions. We view our EUR 40.9m estimate a bit conservative as we model only flat EBIT for ESL: we see a reasonable chance for a well above EUR 25m ESL FY ‘22 EBIT. Telko has continued to surprise but for now we don’t expect much more than EUR 18m EBIT going forward. Our new TP is EUR 14.0 (12.5), and our rating is now HOLD (BUY).
Aspo’s headline EUR 7.6m Q3 EBIT didn’t meet estimates, but the figure includes a EUR 3.4m Kauko impairment loss. Both ESL and Telko recorded new profitability highs.
Aspo’s Q2 group-level EBIT was known before the report. We make minor upward revisions to our estimates, and we see Aspo on a firm track towards full profitability potential.
H1’21 results display a solid foundation to build on
Aspo’s Q2 revenue grew 24% y/y to EUR 142.9m vs the EUR 133.6m/134.5m Evli/cons. estimates. ESL’s top line was up 40% y/y; the EUR 5.4m EBIT was a bit above our estimate as utilization and rates continued to improve throughout the fleet. That said, there should be more potential as efficiency obstacles like port congestion, varying loading demand, virus measures and high dockings limited Q2 profitability. We expect ESL’s EBIT to decline by EUR 0.9m q/q in Q3 as dockings will be roughly double of those seen in Q2. We believe ESL’s EBIT has now reached a firm foundation since cargo volumes were still not abnormally high (some 8% lower than in Q2’19 but up 19% y/y). Meanwhile the Baltic Dry Index has reached multi-year highs and we believe the Supramax vessels’ freight rates are now stabilizing. Telko’s revenue topped our estimate and the 7.7% EBIT margin also marked another record. Strategy work at Leipurin continues but Q2 figures remained soft compared to our estimates. We understand admin costs were a bit elevated e.g. due to the CEO recruitment; Aspo’s long-time CEO Mr Aki Ojanen is retiring and the successor, Mr Rolf Jansson, will begin his work next week.
The EUR 30-36m EBIT guidance moderates H2’21 estimates
We wouldn’t be very surprised to see Aspo top the current EBIT guidance range set for this year. There’s still some uncertainty regarding Q4 results, but we believe ESL’s contribution will then help Aspo reach another record quarterly EBIT. We make minor revisions to our estimates; we remain at the upper end of the FY ‘21 range while we now estimate FY ’22 EBIT at EUR 39.7m (prev. EUR 38.9m). Telko may find it hard to achieve further margin gains (in our view some softness is to be expected), but growth could help sustain high absolute profitability going forward.
Progression and cash flow generation back up valuation
Aspo is valued around 8x EV/EBITDA and 14x EV/EBIT on our FY ’21 estimates. We don’t view these levels challenging considering the profitability potential that is not yet quite fully realized. Our TP is now EUR 12.5 (11.5); we retain our BUY rating.
Aspo released preliminary information regarding Q2 results already last week and so the Q2 report was no news event in terms of group-level EBIT. Telko’s profitability was higher than we expected.
Aspo specified guidance and told Q2 EBIT was headstrong. In our view the latest update dispels any remaining doubts about ESL’s and Telko’s financial performance.
Aspo now guides EUR 30-36m in FY ’21 EBIT
The guidance range midpoint is a positive surprise compared to the EUR 31.2m/30.9m Evli/cons. estimates before the release, not by that much but the guidance appears on the conservative side considering Aspo achieved EUR 9.6m in Q2 EBIT. This record quarterly EBIT topped the EUR 7.1m/7.0m Evli/cons. estimates by a mile and in our opinion Aspo seems poised towards the upper end of the new guidance range. Steel and forest industry customers in particular drive high cargo volumes for ESL. We also believe Telko has once again reached an above 7% EBIT margin; there might still be some long-term downward pressure on such a high profitability level, but nonetheless the prolonged strong performance makes the long-term 6% target seem a bit modest.
Both ESL and Telko are hitting long-term margin targets
We estimate EUR 35.7m in FY ’21 EBIT. We see H2 EBIT at EUR 18.2m and so only a bit above the EUR 17.5m H1 figure. H2 EBIT has tended to be meaningfully higher than that for H1, and perhaps Telko’s recent high profitability faces some headwinds going forward. ESL’s dockings this summer will dent Q3 EBIT, but Q4 is shaping up to be another record and in our view the carrier’s Q4 EBIT could touch EUR 6m. We estimate ESL to reach its 12% long-term EBIT target this year, thus see ESL FY ’21 EBIT at EUR 20.1m (prev. EUR 18.3m) and estimate another EUR 1.5m gain next year. We expect Telko to reach EUR 18.4m (prev. EUR 16.2m) in FY ’21 EBIT. Telko may find it hard to improve from such levels, at least in terms of margin expansion, as it has already reached the 6% long-term EBIT margin target level.
Stable performance and cash flow turn valuation attractive
Aspo could reach EUR 40m annual EBIT in a few years. We expect EBIT to gain some further EUR 3m next year. Going forward we see relatively stable performance for ESL and Telko, while it remains to be seen how much Leipurin can improve. Aspo is valued ca. 7x EV/EBITDA and 13x EV/EBIT on our FY ’21 estimates; we see further earnings growth and deleveraging, thanks to cash flow generation, helping the multiples lower in the years to come. Our TP is now EUR 11.5 (10.5), retain our BUY rating.
ESL and Telko extended recent quarters’ strong figures. In our view Aspo now warrants more long-term valuation perspective. Our TP is EUR 10.5 (9.5), rating BUY (HOLD).
Aspo already reached 6% long-term EBIT target in Q1
Aspo’s EUR 132m Q1 revenue was in line with estimates while the EUR 7.9m EBIT represented a record high and topped the EUR 6.8m/6.2m Evli/cons. estimates. In our view the positive surprise was for the most part due to ESL, but Telko also once again reached a record high EBIT. ESL managed a record Q1 EBIT despite the cold winter, which caused challenges especially for the smaller vessels. Cargo volumes remained flat y/y while shipping freight rates increased for smaller and larger vessels alike. Supply challenges in plastics and chemicals limited Telko’s revenue prospects but contributed to sharp price increases and so helped profitability (in addition to mix improvement). The pandemic continued to limit foodservice as well as machinery potential and thus Leipurin’s profitability remained muted.
Vague guidance for now but long-term potential remains
The vague guidance is warranted by the chaotic conditions in the raw materials and logistics markets. Historically H2 has been the more profitable part of the year but now the effect may be more muted. ESL’s demand continues to look good for the summer months while high docking levels will have a negative effect on Q2 and Q3 EBIT. We expect Telko to reach a 6% EBIT margin going forward (vs the 7.4% Q1 EBIT margin) as the environment begins to normalize. We are now more confident towards ESL’s and Telko’s long-term profitability levels and see how Aspo’s EUR 7.9m Q1 EBIT hints at some EUR 35m annual potential.
ESL’s peer multiples now undervalue the niche carrier
In our view Aspo’s SOTP valuation doesn’t fully reflect ESL’s FV as the dry bulk carrier has a special value chain position compared to a typical peer. In Telko’s case the situation is more nuanced as the peers are large global players. It’s nonetheless clear Telko’s FV has risen a lot in the past few years. Leipurin also has plenty of yet to be realized potential. We saw ESL’s EV at ca. EUR 300m before the pandemic and view that figure still relevant. Meanwhile Telko’s EV has increased from some EUR 150-175m to above EUR 200m. We see Aspo’s EV now at around EUR 500m. Our TP is now EUR 10.5 (9.5), our new rating is BUY (HOLD).
Aspo’s Q1 profitability was a clear positive surprise relative to estimates. EBIT reached a record high and both ESL and Telko topped our expectations.
ESL helped Aspo Q4 EBIT top estimates. Both ESL and Telko now perform, but we see valuation already appreciates this fact. Our TP is now EUR 9.5 (8.75), rating HOLD (BUY).
ESL and Telko have now performed around target levels
Aspo’s EUR 133.5m Q4 revenue was in line with estimates (EUR 129.3m/132.9m Evli/cons.) while the EUR 7.6m EBIT was a positive surprise relative to the EUR 7.0m/7.1m Evli/cons. estimates. The EBIT beat was driven by ESL. The Q4 improvement in ESL’s operating environment didn’t come as a surprise, but in our opinion the EUR 4.8m Q4 EBIT was significantly better than expected (we estimated EUR 3.2m) considering the EUR -0.1m Q3 figure and the fact that top line and cargo volumes were still down from a year ago. ESL’s EBIT was indeed up from the EUR 4.4m comparative figure thanks to cost savings measures. Telko continued to perform close to expectations and posted a strong 6.2% operating margin. Meanwhile Leipurin EBIT declined to EUR 0.2m from the EUR 1.1m comparison figure.
Aspo didn’t issue numerical EBIT guidance range for FY ‘21
ESL’s strong Q4 profitability (already close to the 12% long-term margin target) is encouraging as there’s now sound evidence Aspo’s two main cylinders are firing and can perform close to their long-term target levels. In our view the recent performance levels indicate ESL and Telko should by themselves help Aspo reach EUR 30m EBIT this year. Aspo however didn’t give any numerical EBIT guidance range. According to the guidance EBIT will be higher this year, and as such the statement isn’t very informative. In our view ESL’s EBIT will improve a lot this year but is probably not going to reach EUR 20m yet. We revise our FY ’21 EBIT estimate for ESL only from EUR 16.3m to EUR 16.4m as environmental equipment installations mean there’ll be more lay-ups than usual. We expect Telko FY ’21 EBIT to grow by 9%.
We consider current valuation to land within a neutral area
We revise our Aspo FY ’21 EBIT estimate up only a bit to EUR 29.7m. This means ca. EUR 10m annual gain and in terms of EBITDA 25% y/y growth. In our opinion Aspo’s valuation, at least in terms of SOTP, already reflects significant earnings growth for this year. There’s likely to be more potential beyond ’21, however we don’t see these gains should be fully valued right now. Our new TP is EUR 9.5 (8.75) per share, rating HOLD (BUY).
Aspo’s Q4 EBIT topped estimates thanks to ESL’s strong profitability. It is clear EBIT is set to improve this year, however Aspo did not disclose numerical EBIT guidance range.
Aspo revised FY ’20 guidance, which prompts us to update estimates particularly for ESL and Telko. Our TP is now EUR 8.75 (8) per share, BUY rating remains intact.
We raise our total Q4’20 EBIT estimate by EUR 2.9m
Aspo states especially steel and energy industry cargo volumes have developed strong and so ESL has performed better than expected before. The upgrade is thus not due to e.g. additional cost savings but driven by improving business conditions. Aspo previously guided EUR 14-16m in FY ’20 EBIT and the revised range is EUR 18-20m. The positive outlook revision was not such a big surprise since the previous guidance seemed to us quite cautious with respect to Telko’s development. We now estimate ESL to post EUR 3.2m in Q4 EBIT (prev. EUR 1.7m) and Telko to improve slightly further to EUR 4.3m (prev. EUR 2.8m). The new range suggests Aspo will achieve about EUR 7m in Q4 EBIT, which implies the company is well on track towards more than EUR 30m annually in the coming years.
The upgrade is incrementally positive for our overall view
Only last year Aspo’s profitability development appeared to rely mostly on ESL. There was potential in Telko that always waited for its materialization. Earlier this year the roles reversed in a way when Telko delivered very strong Q2 and Q3 results while ESL was clearly suffering the pandemic’s adverse effects. It has now become more apparent that ESL has not been left nursing any permanent wounds. Given ESL’s intact prospects and Telko’s gains Aspo’s overall development towards long-term financial targets can even be considered positive in 2020 (despite that FY ’20 EBIT will likely decline a bit y/y). EBIT thus seems bound towards the EUR 30m ballpark in the coming years, compared to the EUR 20m level before the pandemic.
Current valuation still leaves good upside potential
The recently reaffirmed long-term financial targets now look maybe more relevant than ever. There’s strong potential in all three segments, however 2020 also raises macroeconomic uncertainty and thus the operational upside prospects should still be valued somewhat cautiously. In our opinion Aspo’s equity value per share could easily top EUR 10 in the future if ESL and Telko continue to perform well next year. Our new TP is EUR 8.75 (8) and we retain our BUY rating.
Aspo reaffirmed its long-term financial targets for FY ’23. The CMD didn’t disclose any drastic news but we are slightly more positive than before regarding the earnings rebound. Our TP is now EUR 8.00 (7.25), retain BUY rating.
ESL’s long-term 12% EBIT margin potential is still there
While the dry bulk cargo market has been hit by the pandemic ESL has not lost market share. Large vessel operations have been especially challenging due to a lack of cargo demand, however smaller vessel types, such as those of AtoB@C, have performed better. ESL in fact reports the business has won market share in e.g. wood-based products shipments. The fleet can also serve e.g. the Baltic wind power industry in the effort to scale up renewable energy production in the area. In the long-term the Arctic area (incl. Russia) holds strong cargo volume potential for larger vessels. Such vessels’ cargo volumes began to increase in late Q3. ESL’s capacity is now fully in use. In our opinion dry bulk cargo markets are already on track to normalize in tandem with many industrial sectors even if the pandemic is yet to fade away from more everyday life. ESL also says it has achieved admin costs reductions that are not just one-offs in nature.
Telko already achieved long-term margin targets
Telko’s recent working capital management and pricing control measures have already produced significant results in cash conversion cycle, and there remains some more room for improvement relative to certain benchmarks. Telko now has established the lubricants business besides the plastics and chemicals ones. We believe lubricants is an area that can deliver more good results in the long-term as the business is still quite small relative to plastics and chemicals. We see Telko’s reinforced core is now better positioned to capture profitable volumes. Telko has indeed already managed to top the 6% EBIT margin target during the last two quarters. Leipurin however is yet to deliver gains towards its 5% EBIT margin target.
Significant EBIT improvement appears possible next year
Although the long-term financial target confirmation is good news as such focus nevertheless remains on more short-term profitability development. Our TP is now EUR 8.00 (7.25); we retain our BUY rating since profitability continues to improve and SOTP valuation supports further upside potential.
Aspo’s earnings beat estimates, and even if the guidance doesn’t hint at a particularly rapid q/q Q4 EBIT recovery in our view profitability has already bottomed out. We retain our EUR 7.25 TP and BUY rating.
Telko delivered another earnings surprise in a row
Aspo’s EUR 3.6m Q3 EBIT clearly beat the EUR 1.7m/1.1m Evli/cons estimates. The surprise was largely due to Telko, which extended its Q2 performance by posting a similar EUR 4.2m in EBIT. Yet Telko’s market outlook remains cautious and Aspo’s new guidance in our view manages expectations slightly downwards. The results nevertheless do showcase sound long-term potential. ESL fell to red as expected and Leipurin’s profitability remained subdued. In terms of Q4 results it should be noted that demand for ESL’s larger vessels began to improve in late Q3. We see the implication of the earnings beat and Aspo’s specified guidance to be that Q3 marks out the low point in Aspo’s profitability, however the q/q dip was relatively small and thus Q4 results are unlikely to recover as sharply q/q as we estimated before.
We now see H2 EBIT EUR 1.2m higher than before
With respect to Q4 EBIT we revise our estimates down for ESL (from EUR 2.8m to EUR 1.7m) and Leipurin (from EUR 0.9m to EUR 0.5m) while we now expect Telko to reach EUR 2.8m (prev. EUR 2.3m). In our view Aspo’s guidance seems a bit conservative considering Telko’s recent development (that is unless we are overestimating the q/q profitability recovery rates for ESL and Leipurin). Although the pandemic continues to worsen some more, this spring’s initial shock is now history and supply chains are better prepared. In this sense we see it highly plausible that Aspo’s segments, essentially industrial logistics services providers, can show some meaningful improvement next year as well.
A lot of uncertainty remains but we view upside more likely
We still see Aspo’s valuation attractive in terms of SOTP, however we note especially ESL’s valuation is hard in such extraordinary times when dry bulk carriers are off their normal earnings levels. Aspo’s segments still have plenty to go before reaching their long-term financial targets, but we have grown more confident that this year marks the bottoming out for Aspo’s overall profitability. We thus view upside scenarios more likely than downside ones. We retain our EUR 7.25 TP and BUY rating.
Aspo’s Q3 EBIT meaningfully topped expectations as Telko continued to perform strong.
Aspo reissued guidance for this year. In our view the main takeaway is that improvement will be visible in Q4 figures, albeit there’s still long way to reach the targets set for ’23. Our TP is EUR 7.25 (6.00), rating BUY (HOLD).
Q4 will mark the beginning of profitability rebound
Aspo now guides FY ’20 EBIT to be in the EUR 12-16m range, compared to EUR 21.1m last year. Aspo says Telko’s (including Kauko) development has proved a positive surprise while Leipurin has been able to defend its profitability despite exceptional circumstances. Aspo expects the combined EBIT for Telko and Leipurin segments will be higher this year than in ‘19 (the combined figure amounted to EUR 11.0m last year). Meanwhile Aspo estimates ESL will post a negative result for Q3 but expects Q4 to be clearly profitable as e.g. steel industry production shutdowns end and cargo volumes will begin to grow.
Q4 results will still be significantly below target levels
The new range’s EUR 14.0m midpoint is lower than our previous EUR 15.3m estimate, the difference being mostly due to ESL’s expected negative Q3 result (which we previously estimated at EUR 0.4m). We now expect ESL to post EUR -0.2m in Q3 EBIT. We leave our FY ’20 estimates intact for other segments, and so we now expect Aspo to post EUR 14.6m EBIT this year. In our view the guidance reissue is positive news for Aspo shareholders in terms of informational content as it hints at relatively brisk profitability rebound in Q4. On the other hand, Q4 EBIT, which we now estimate at EUR 4.8m, will still be far from Aspo’s full potential. According to the long-term targets published at last fall’s CMD, Aspo aims for 6% EBIT margin in ‘23 (vs our 3.9% estimate for Q4). ESL’s targets imply EUR 24m in annual EBIT, or some EUR 6m on a quarterly level (vs our EUR 2.8m estimate for Q4). Telko and Leipurin will likewise still be generating EBIT margins clearly below their respective 6% and 5% targets.
Uncertainty remains, but we see surprises tilting to upside
The guidance pushes away some uncertainty, yet it was previously known this year will fall significantly below long-term potential. Next year’s profit gradient is the key question; the main upside driver is found in positive surprises for ‘21. Although it’s early to wait such news, we see valuation attractive already in terms of SOTP. Our TP is EUR 7.25 (6.00), rating BUY (HOLD).
Aspo Q2 was stronger than expected thanks to Telko, but the report and comments painted a cautious short-term picture. Our TP remains EUR 6.0, retain HOLD rating.
Some beacons of light but still surrounded by thick fog
ESL’s top line declined by 23% y/y and at EUR 32.9m was clearly below our EUR 40.1m estimate. Q2 EBIT, at EUR 0.6m, thus didn’t meet our EUR 1.6m estimate. Steel industry cargo volumes fell steep and energy industry activity wasn’t much better. Smaller vessels continued to perform quite well but many larger ones operated in weak spot markets. ESL managed to shave fixed costs by EUR 0.9m and Aspo says cost measures will be fully realized in Q3, however Q3 outlook is not bright as steel industry volumes will be low with rebound now expected for Q4. Meanwhile Telko posted EUR 4.2m EBIT (vs our EUR 1.1m estimate), a strong show given that revenue declined by 26% y/y to EUR 59.5m (vs our EUR 63.1m estimate). Telko’s performance is clearly on an improving trend thanks to efforts addressing e.g. working capital efficiency. It however seems Q2 EBIT margin was exceptionally high and current outlook is challenging especially in Ukraine and Russia. Leipurin Q2 revenue fell by 17% y/y and the EUR 0.3m EBIT didn’t meet our EUR 0.6m estimate as certain machinery deliveries bound for Russia were postponed to H2.
We cut estimates due to cautious market comments
Aspo’s H1 figures already reflected the pandemic shock yet Q3 remains challenging especially for ESL. We now expect ESL EBIT at EUR 0.4m and EUR 2.9m respectively for Q3 and Q4. In our view Aspo’s unofficial soft guidance for Telko FY ’20 (flat y/y absolute profitability i.e. some EUR 8m) seems a bit conservative given the EUR 6.6m accumulated already in H1. We expect Telko Q3 EBIT at EUR 2.3m. We cut our H2 EBIT estimate all in all by EUR 4.0m to EUR 7.2m, reflecting Aspo’s cautious comments.
Strong rebound remains a possibility yet not imminent
It’s clear this year will be quite soft figurewise with ESL only beginning to rebound in Q4. There’s thus clear upside relative to long-term estimates, yet in our view given the prolonged pandemic uncertainty it takes a lot of conviction to rely on that outlook. In terms of SOTP there’s potential with respect to the ’19 and ’20 average, however that approach relies on Telko’s FY ’20 improvement. Our TP remains EUR 6, rating HOLD.
Aspo clearly beat estimates in terms of profitability, managing to post flat EBIT despite a significant drop in revenue as Telko’s profitability proved a huge positive surprise.
Aspo’s operations ran rather normal in Q1, but profitability is under more pressure in Q2 and it’s quite uncertain how strong EBIT might rebound in H2’20. We have cut our estimates, our TP is now EUR 6.00 (6.25), rating HOLD.
The segments will perform far short of their potential
The nascent pandemic began to impair ESL’s EBIT early on in Q1 as the escalating situation in China had a substantial negative effect on shipping rates. ESL’s Q1 EBIT thus fell to EUR 2.3m from EUR 3.2m a year ago. ESL was able to run its operations without interruptions and cargo volumes declined only slightly to 3.5m tonnes (3.6m tonnes a year ago), helped by stable levels for smaller vessels. Demand for larger vessels, however, remains rather weak and this also negatively affects demand for loading services. Q2 is thus set to be worse. Telko’s EUR 2.4m EBIT in the face of falling volumes and prices was in our view strong show (revenue down 12% y/y), yet the operational improvements are probably not going to help figures that much in the near-term considering the kind of macroeconomic outlook e.g. vaporizing oil prices are indicating. Leipurin’s EBIT improved to EUR 0.6m, but many customers such as restaurants, cafes and small bakeries are suffering. Large industrial bakeries saw demand briefly spike but the situation has since normalized.
We now expect FY ’20 EBIT to decline almost 20%
We have cut our estimates especially for Telko. We now expect Telko’s FY ’20 revenue to decline by 14% and see EBIT down to EUR 6.4m compared to EUR 8.0m last year. For Q2 we see Telko revenue down 22% y/y. We estimate Aspo’s FY ’20 EBIT at EUR 17.4m (previously estimated EUR 20.7m) as macroeconomic recovery prospects have continued to deteriorate. H2’20 remains particularly uncertain in terms of ESL’s cargo volume outlook (on which EBIT improvement mainly relies). In our view Aspo’s creditworthiness is not in question (the company also has a EUR 67m liquidity position), but from a shareholder point of view the pace of improvement remains crucial, and right now it’s unclear just how quickly profitability could reach more attractive levels.
We see current valuation fair in the present environment
Our view is unchanged in the sense that higher profitability potential remains, but for now it’s difficult to rely on long-term estimates. Our TP is EUR 6.00 (6.25), rating still HOLD.
Aspo disclosed its preliminary Q1 figures already on Apr 9, in addition to withdrawing guidance for FY ’20, so there was little surprise with regards to the results released today. The pandemic did hurt Q1 figures to some extent, but the impact will be felt harder during Q2.
Aspo withdrew FY ’20 guidance as the pandemic is yet another setback for operations. We have cut estimates according to our assumption that business will begin to normalize during Q2 as many governments are reportedly about to ease restrictions. Yet we remain cautious given the uncertainty; our TP is now EUR 6.25 (8.25), rating HOLD.
Q1 was very weak for ESL, Telko performed relatively strong
Aspo disclosed preliminary Q1 figures. ESL operated in challenging conditions as the Chinese situation in the beginning of the year already affected shipping rates. ESL’s steel and energy transport volumes decreased in Q1 and the uncertainty means there’s no solid view on cargo volume potential for the rest of the year. Aspo says smaller vessels’ cargo volumes remained at a normal level. ESL’s Q1 top line decreased by 2% y/y to EUR 42.7m (our estimate was EUR 46.7m) and EBIT decreased to EUR 2.3m compared to EUR 3.2m a year ago and our EUR 4.9m expectation. Meanwhile Telko performed relatively good as Q1 revenue amounted to EUR 63.6m i.e. down by 12% y/y but close to our EUR 63.9m estimate. Telko’s Q1 EBIT, unchanged y/y at EUR 2.4m, was slightly above our EUR 2.2m estimate. This indicates Telko’s profitability measures are having some effect. Leipurin’s Q1 revenue amounted to EUR 26.9m, up 4% y/y and in line with our EUR 26.8m estimate. Leipurin’s EBIT increased slightly to EUR 0.6m while our estimate was EUR 0.7m.
The H2’20 EBIT improvement slope is very hard to assess
Aspo previously guided FY ’20 EBIT to be higher than in ’19 (EUR 21.1m). In our view Aspo’s profitability for this year is especially difficult to estimate with current information as last year’s result doesn’t represent a high hurdle as such given the long-term potential. In a scenario closer to normal we would have expected Aspo to reach the guidance easy. Yet the potential is now even more subject to uncertainty as the macro picture is very murky. We expect better results in Q3 but see Q2 EBIT down to EUR 2.6m (we previously estimated Q2 EBIT at EUR 7.0m).
The environment justifies low valuation relative to potential
In our view the potential for higher EBIT remains, however in the current situation it’s challenging to rely on long-term estimates. Our TP is now EUR 6.25 (8.25), rating remains HOLD.
Aspo’s EUR 5.4m Q4 EBIT missed us and consensus by ca. EUR 1.0m. The miss was due to Telko. We believe Aspo has operational upside long-term, however we also view current valuation neutral given the uncertainty surrounding the improvement slope. We have made only minor estimate revisions. Our TP remains EUR 8.25, rating still HOLD.
ESL didn’t disappoint, yet macro uncertainty still weighs
ESL posted EUR 4.4m Q4 EBIT i.e. a 5% y/y increase and slightly above our EUR 4.3m estimate. In our view this was a decent performance considering Q4 cargo volumes declined y/y from 4.5m tonnes to 4.0m tonnes as steel industry shipments fell dramatically. Energy industry shipment volumes were also soft due to warm weather. Aspo sees Baltic Sea steel industry cargo volumes now stabilizing. Even though the LNG-powered vessels as well as AtoB@C are performing well, there’s uncertainty regarding ESL’s EBIT improvement slope this year. Nevertheless, even if steel industry shipments don’t rebound meaningfully in ’20 we would still expect ESL to achieve significantly higher EBIT. Telko’s EUR 0.9m Q4 EBIT didn’t meet our EUR 2.2m estimate and declined significantly y/y from EUR 3.4m. EBIT took a EUR 0.9m hit due to low volumes and raw materials prices, and FX. Telko also destocked low-margin low-turnover inventory, which also had a negative EUR 0.9m effect. Leipurin bakery business seems to be improving especially in Russia, however given the macro uncertainties around ESL’s and Telko’s profit development we don’t see this as a meaningful enough value driver currently.
Aspo guides improving EBIT for this year
We still view ESL able to post some EUR 5-6m in quarterly EBIT; should steel industry volume development turn positive in ’20 the dry bulk carrier should have no trouble achieving EUR 20m (compared to EUR 14.6m last year). Aspo says Telko’s Q1 will still be burdened by destocking measures. In our view Telko should still be able to achieve quarterly EBIT close to EUR 3m this year.
In our view valuation is neutral given uncertainty
There’s significant upside potential relative to Aspo’s long-term targets, however in our opinion the bridge there is not as of now stable enough to turn our view more positive. Our TP is still EUR 8.25, while our rating remains HOLD.
Aspo reported Q4 EBIT at EUR 5.4m i.e. missing our and consensus estimate by about EUR 1.0m. In our view the EBIT miss was wholly attributable to Telko.
Aspo updated its long-term targets in connection with the CMD yesterday. There were no actual downgrades to longterm EBIT margin targets, however Aspo abandoned the target ranges’ upper limits for both ESL and Telko, in addition to pushing the margin target dates further forward into the future for all segments. Our updated TP is EUR 8.25 (8.75), while our rating remains HOLD.
ESL’s 12% EBIT margin target left intact, but pushed back
ESL now aims for EUR 200m revenue and 12% EBIT margin in ‘23. The previous target was EUR 200m revenue and 12-15% margin in ‘20. A target softening wasn’t a big surprise considering the recent cargo weakness, largely attributable to the Nordic steel industry, although in our view the ‘23 target date should leave ESL with potential for a positive surprise assuming the market challenges are not seriously prolonged. No big news regarding the fleet’s current situation were floated. ESL said it is assessing new fleet investments i.e. growth prospects beyond ‘23. These would be in the form of environmentally friendly coasters (consistent with the acquisition of AtoB@C). Such an evaluation reflects ESL’s positive outlook on biofuels volumes. ESL also told it is considering different types of ownership and financing alternatives for the potential new smaller vessels. However, no major investments are likely soon.
Telko and Leipurin margin target dates pushed back
While Telko’s volumes have developed well (+10% this year), the focus will be on improving profitability in the coming years, i.e. the story wasn’t changed. Telko’s profitability in e.g. Ukraine hasn’t been developing as hoped. Aspo also said Kauko’s annual revenue will decline to EUR 10m effective Jan 1. Telko now targets 6% EBIT margin with EUR 300m revenue (excl. Kauko) in ‘23 (previously EUR 300-350m revenue and 6-7% margin in ‘20). Leipurin still targets EUR 140m revenue and 5% EBIT margin, however the date was pushed back by a year to ‘23.
Full potential will not materialize for a while
We have updated our estimates following the new targets. We revise our estimates down especially beyond ‘20, but also see next year EBIT some EUR 2.4m lower than previously. Our new TP is EUR 8.25 (8.75). Our rating remains HOLD.
Aspo abandoned its former guidance for the rest of this year as ESL’s cargo volumes will be soft due to low steel industry demand. Telko’s profitability development will remain muted especially in the Western markets. We cut our estimates, our TP is now EUR 8.75 (9.25), rating HOLD.
In our view ESL’s long-term case remains intact
As was known previously, SSAB will temporarily shut one of its two furnaces in Raahe. The seizure is expected to last some 4-6 weeks, and the furnace should be firing up again early next year. ESL had of course made allowances in its budgeting for such an event, nevertheless the shipments materialized lower than expected. We note the Baltic Dry Index has declined steeply during the last couple of months, however ESL says its Supramaxes haven’t been materially affected so far. As the new LNG-powered vessels and AtoB@C are now performing according to expectations, it follows that the lowered near-term outlook is entirely due to low steel industry shipping volumes. With regards to Telko, Aspo says the Eastern market is developing basically as before, however the Western market has proved more challenging than expected.
We cut our Q4 estimates, see higher uncertainty for Telko
We trim our Q4 estimates. We previously expected ESL to achieve EUR 5.5m in Q4 EBIT; our new estimate stands at EUR 4.3m. Our previous Q4 EBIT estimate for Telko was EUR 2.7m, and the reduced expectation amounts to EUR 2.3m. We leave our estimates for Leipurin intact. This means we estimate Aspo to post EUR 6.4m Q4 EBIT, which can be compared to the EUR 6.7m figure recorded in the previous quarter, and the adjusted EBIT of EUR 7.4m in Q4’18. We thus see Aspo reaching EUR 22.1m in FY ’19 EBIT (EUR 20.6m in ’18, or EUR 25.4m when adjusted for the Kauko write-off). Aspo now guides FY ’19 EBIT to be higher than in ’18. Aspo previously expected the figure to be in the EUR 24- 30m range. We also cut our next year estimates for Telko.
Improvement steepness is uncertain due to macro softness
Our updated TP is EUR 8.75 (9.25), rating remaining HOLD. In our view both ESL and Telko continue to hold significant improvement potential, however caution is in order considering the softness of certain key Aspo markets.
Aspo’s EUR 6.7m Q3 EBIT fell short of our EUR 7.6m estimate, yet we see the key segments making progress despite the prolonged series of disappointing earnings. Macro weakness hit both ESL and Telko in Q3; we see the segments positioned to improve despite macro headwinds. Our TP is now EUR 9.25 (9.50); we rate Aspo HOLD (BUY).
ESL’s cargo volumes disappointed projections
ESL Shipping’s Q3 EBIT of EUR 4.4m is a step forward on the path towards a materially elevated earnings level. However, we expected the dry bulk carrier to achieve a EUR 5.3m EBIT for the quarter and as such view the result disappointing. ESL shipped 4.2 million tonnes of dry cargo in Q3, which according to our view fell almost 10% short of expected levels. The company comments the volume miss was especially due to low Nordic steel industry shipments, although softness was seen also in other cargo categories such as forest products. Besides the weak Q3 cargo development, the report had a silver lining as Aspo says the LNG-powered vessels and AtoB@C are performing strong.
Chemicals prices remained soft, pressuring Telko earnings
Telko’s underlying Q3 volumes grew by 8% y/y, yet revenue decreased by 4% as plastics and chemicals prices extended their slide. The cited 16% y/y and 3% q/q chemicals price decreases meant Telko’s EUR 74.7m in Q3 revenue and EUR 2.4m EBIT fell short of our respective EUR 81.5m and EUR 2.7m estimates. This led to EBIT margin decreasing by more than 100bps y/y. However, such a comparison is not very meaningful due to the big drop in prices, and we note the 3.2% Q3 EBIT margin a clear improvement relative to Q2 as prices have continued soft. We view the figure as evidence that Telko is making progress in improving working capital management.
Aspo’s key segments were affected by macro weakness
We leave our Q4 estimates for ESL intact despite the earnings miss as we see certain positive comments (such as good demand for loading operations) balancing the negatives regarding transportation volume softness. We expect ESL to achieve EUR 5.5m in Q4 EBIT, thus bringing FY ’19 EBIT to EUR 15.7m. We update our estimates for Telko to reflect the latest market developments. We now expect Telko to achieve EUR 2.7m in Q4 EBIT (we previously expected EUR 3.0m) and thus see the chemical distributor’s FY ’19 EBIT at EUR 9.8m. We note the uncertainty is elevated concerning Telko’s profitability going forward. On the positive side, we see the company making progress with its efficiency improvement program, and thus in an improved position to post better results should markets stabilize. On the other hand, the market and price outlook stays clouded for now. Leipurin’s machinery business continued to strain profitability, and Aspo sees the business line will post an annual loss. A change in schedule for a significant Russian machinery delivery leads us to cut our Q4 EBIT estimate for Leipurin to EUR 1.0m from the previous EUR 1.3m. On the positive side, Aspo’s group administration costs only amounted EUR 0.9m (has been previously hovering around EUR 1.3m).
We update our TP, rating now HOLD (BUY)
We update our estimates, and now expect Aspo to record EUR 24.0m in FY ’19 EBIT. We expect ESL to further improve going forward and see Telko improving materially should markets and plastics and chemicals prices stabilize. Aspo left its FY ’19 guidance intact, indicating accelerating performance for Q4 and a minimum of EUR 8.3m in EBIT. Our new TP is EUR 9.25 (9.50), rating now HOLD (BUY).
Aspo’s Q3 EBIT, at EUR 6.7m, missed our EUR 7.6m estimate by 12% (the consensus was EUR 7.8m). ESL improved, but still didn’t quite reach the level of EBIT we were expecting. Nevertheless, Aspo retains its FY ’19 guidance, implying steepening improvement for Q4.
Aspo’s H1’19 results were subdued as ESL was hampered by a plethora of one-off problems, while Telko and Leipurin also posted weaker profits. We expect Aspo’s results will improve sharply from H2’19 onwards, particularly due to ESL as the dry bulk carrier’s recent investments start to contribute. We also expect gradual improvement for Telko and Leipurin as both segments are taking actions to address profitability. Our TP is now EUR 9.5 (9.0) due to higher peer multiples raising SOTP valuation; our rating remains BUY.
We expect ESL to carry Aspo to materially higher results
We estimate ESL’s H2’19 EBIT to almost double compared to H1’19 as the malfunctioning cranes have been fixed, the market for Supramaxes has improved, and acute issues with Baltic Sea steel industry and ports have subsided. For FY ’19 we expect ESL to record EUR 16.6m in EBIT. We estimate the figure to further improve to EUR 23.6m in 2020 as synergies with AtoB@C fully materialize. In our view ESL will remain the cornerstone of Aspo as the segment contributes ca. 60% of the conglomerate’s value.
Telko and Leipurin have plenty of improvement potential
Telko’s operating margin weakened in H1’19 as the distributor carried high inventories and plastics and chemicals prices declined. Although market outlook remains soft we expect profitability to have bottomed out as the company is taking measures to boost efficiency. In our view Telko could prove a source of further upside for Aspo shareholders as there’s good potential for improved profitability. The situation for Leipurin is not unlike that for Telko; Leipurin is developing its operations and H2’19 results are bound to improve due to machinery deliveries. We expect Telko and Leipurin to post a combined EBIT at a level EUR 5.3m higher in 2020 compared to 2019.
Value is anchored to ESL, yet Telko could move the needle
Our updated TP is EUR 9.5 (9.0) as peer multiples have increased, boosting SOTP. Our estimates for next year and beyond do not fully capture the profitability potential of Telko and Leipurin, which could drive further upside beyond ESL. Our rating is BUY.
Aspo’s Q2 didn’t alter the bigger picture much as ESL is still expected to post higher EBIT in H2’19 as investments are paying off. However, Telko’s subdued results were a negative. Our TP is now EUR 9.00 (9.25), rating BUY (HOLD).
Q2 weaker than expected as Telko was unable to improve
Aspo’s EUR 151m Q2 revenue met our expectations, yet the EUR 4.1m EBIT missed our EUR 5.2m estimate. The miss was largely attributable to Telko’s weak 2.9% operating margin (we expected 4.5%), which declined both q/q and y/y. Telko’s EUR 80.6m Q2 revenue was in line with our estimate, and improved q/q and y/y, however declining plastic raw materials and chemicals prices continued to hurt profitability as Telko’s inventories were high (although have since normalized). The strengthening Russian and Ukrainian currencies had a further negative impact. Leipurin also fell short of our expectations and last year due to the machinery business’ weakness. Meanwhile ESL posted EUR 2.6m in EBIT (we cut our estimate to EUR 1.8m after Aspo warned Q2 will be weak due to a challenging market for the Supramax vessels).
ESL’s EBIT is set to almost double in H2 compared to H1
ESL’s LNG vessels are expected to reach their full potential in H2’19 as the cranes are now functioning normally. AtoB@C is also contributing. The market for Supramaxes has improved with the Baltic Dry Index rebounding sharply from its early 2019 lows. Steel sector shipments have also normalized after Q2, a period hampered by process challenges in Baltic steel mills as well as heavy traffic at Baltic Sea ports. We thus leave our H2’19 estimates for ESL intact (expect EUR 11m in H2’19 EBIT vs EUR 8m in H2’18). We revise our Telko estimates down as the market outlook in both West and East remains cautious. We previously expected Telko to reach 4.5-5.0% EBIT margins in H2’19 but now expect ca. 3.5%. On a more positive note, Aspo says Telko has managed to improve its inventory turnover recently.
Aspo’s H1’19 was subdued, but EBIT should improve considerably in H2’19
ESL’s H1’19 was weak with EBIT amounting to EUR 5.8m vs EUR 6.9m previous year. The results were hampered by the two new LNG vessels’ crane problems (which have since been fixed) as well as challenging market for the two Supramax vessels. Moreover, Q2 was slow for steel industry shipments as Baltic Sea steel mills’ annual maintenance procedures took longer than expected. Baltic Sea ports also faced operational challenges, leading to extended waiting periods for vessels. Meanwhile Telko and Leipurin struggled to improve their profitability in H1’19 due to the former suffering from declining chemicals prices and the latter dragged by slow machinery business. Aspo’s H1’19 EBIT stood at EUR 9m (EUR 11m). We expect Aspo’s EBIT to improve to EUR 16m in H2’19.
The bulk of Aspo’s value continues to tilt towards ESL
Telko’s contribution to our SOTP valuation has dropped as we have lowered our estimates for the chemical distributor. We now expect Telko to manage EUR 10m (EUR 14m) in FY ’19 EBIT. Our TP is now EUR 9.00 (9.25) due to lower SOTP as we expect FY ’19 EBIT at EUR 25m (EUR 28m). Our rating is now BUY (HOLD).
Aspo’s Q2 revenue stood in line with our estimate, however the EUR 4m EBIT fell short of our EUR 5m expectation mostly due to Telko’s relatively low 2.9% operating margin. ESL’s EBIT came in above our estimate. Aspo had previously warned about subdued Q2 for ESL due to a challenging market for the Supramax vessels.
Aspo lowered its FY 2019 guidance yesterday due to ESL Shipping’s weak Q2 result as the dry bulk carrier’s two Supramax vessels operated at a loss. Aspo previously expected 2019 operating profit to be in the EUR 28-33m range, but now guides EUR 24-30m (the company managed EUR 20.6m in 2018). We previously estimated Aspo’s FY 2019 EBIT at EUR 31m; our revised estimate stands at EUR 28m. Our target price is now EUR 9.25 (9.75) per share. Our new rating is HOLD (BUY).
We update our estimates for ESL Shipping
Aspo says ESL’s Q2’19 EBIT will decline y/y as the two Supramax vessels posted losses. Aspo also states main customers’ shipping volumes (e.g. SSAB) decreased substantially during the summer months, thus weakening operational efficiency. ESL reported EUR 4.3m in Q2’18 EBIT. Whereas we previously expected ESL to post EUR 4.2m in Q2’19 EBIT, we now expect the dry bulk carrier to have generated EUR 1.8m in EBIT during the quarter. We also update our estimates for the coming quarters. We previously expected ESL’s FY 2019 EBIT at EUR 19m, and now estimate EUR 16m. For FY 2020 we project EUR 23m (previously EUR 26m). There was no update concerning the two new LNG vessels, but Aspo has previously said the crane problems have now been fixed and thus we continue to expect ESL to achieve significant earnings improvement during the second half of 2019.
We leave Telko and Leipurin estimates unchanged
We are not making changes to our estimates for Telko and Leipurin this time. Our revised estimates for ESL mean we now expect Aspo to have generated EUR 5.2m in Q2 EBIT (vs EUR 7.1m a year ago). Our previous estimate stood at EUR 7.6m. We now expect Aspo to manage EUR 28m in FY 2019 EBIT (previously EUR 31m). Aspo’s new guidance range for FY 2019 EBIT is EUR 24-30m (previously EUR 28-33m).
Our updated TP is EUR 9.25 (9.75); new rating HOLD (BUY)
Following our model update we now expect Aspo to post EUR 40m in EBIT next year. Our new TP is EUR 9.25 (9.75), reflecting lower SOTP valuation. Our rating is now HOLD (BUY).
Aspo posted a 3.5% EBIT margin, missing our expected 4% level as Telko and Leipurin disappointed. Telko suffered from declining plastic raw materials and chemicals prices, while Leipurin’s Q1 fell short due to timing of Easter and machine sales. However, we see ESL proceeding on track. Our rating stays BUY; we update our TP to EUR 9.75 (9.50).
ESL’s operations on track towards higher EBIT
ESL’s Q1 was expectedly subdued as the two new LNG vessels’ cranes were being repaired. The warranty repairs were mostly finished by the end of Q1. Aspo says some parts are still being changed, but the ships are expected to be fully operational in Q2. However, we note that it will likely be a few more months before maximum efficiency is achieved, and consequently we do not expect ESL to reach its full operating profit potential in Q2. We estimate ESL to post EUR 6m EBIT in Q3, seeing the annual EBIT potential from thereon at around EUR 25m.
Telko now includes Kauko; Leipurin slow due to timings
The old Telko beat our EUR 63.6m revenue estimate, posting EUR 65.8m in Q1 sales (EUR 71.9m w/ Kauko). The comparable y/y growth amounted to 14% (11% w/ Kauko). Q1 sales growth was high y/y due to the slowness of the comparison period (itself impacted by exceptionally cold weather which affected Russian and Ukrainian construction). Volume growth was strong, however the price levels of plastic raw materials continued to decline, hurting margins. The prices declined by 5-6% q/q and 7- 10% y/y (margins on raw materials held in storage will be particularly impacted). Meanwhile chemicals prices declined by 10% q/q and 3% y/y. As a result, the old Telko managed a 3.6% EBIT margin (3.8% in Q1’18). Telko targets EBIT margin at 6-7% in ‘20. The target may prove challenging, and we don’t expect improvement on last year’s 4.5% margin (old Telko) this year.
Our expectations for ESL remain unchanged
We expect large EBIT growth in ‘19-20 as ESL’s new ships’ contribution will fully materialize. We lower our estimates for the other businesses slightly, update our TP to EUR 9.75 (9.50) as higher peer multiples lift SOTP valuation. Our rating stays BUY.
Aspo’s Q1 net sales grew 23% y/y, reaching EUR 142m and thus exceeding our EUR 137m estimate. Group operating margin, at 3.5%, fell a little short of our 4.0% expectation. ESL’s top line came in 9% above our estimate (operating margin was in line with our expected 7.2%). In other words, Telko’s and Leipurin’s profitability fell short of our expectations.
We met with Aspo’s management to discuss near term outlook for ESL and Telko. Based on the discussions, we revise our estimates for 2019-20. While in our view Aspo companies are on a steady track towards higher EBIT margins, we acknowledge that our estimates have been too optimistic, especially for 2019. We update our projections to reflect the fact that the earnings improvement trajectory for ESL and Telko is likely to play out over a longer period than we previously expected.
We now expect flat H1’19 EBIT for ESL Shipping
Whereas we previously expected close to EUR 7m quarterly EBIT for ESL starting from the beginning of Q2’19, we now expect the second quarter to stay relatively muted (EUR 4m EBIT). Compared to our initial expectations, we now see it will take longer for ESL to reach the two new LNG vessels’ optimal performance level. While the crane issue should be fixed by the end of Q1, it will be a few more months before operational efficiency will achieve the desired standards. We expect ESL to demonstrate more significant EBIT improvement during the second half of 2019, and we estimate a quarterly EBIT above EUR 6m to be feasible after 2019.
Telko’s 2019 EBIT margin to improve by 30bps
Telko’s EBIT margin improved by 40bps in 2018, reaching 4.5%. Whereas we previously expected further margin expansion to the tune of 100bps in 2019, we now moderate our estimate to equal a 30bps increase. Procurement efficiency will improve slower than we estimated earlier. Telko’s stated target for 2020 is an EBIT margin of 6-7%. We now expect Telko to reach this target only during the last quarter of 2020.
Our rating is BUY, target EUR 9.50 (9.75) per share
Aspo now trades at 13.6x our 2019e EBIT. We update our target price to EUR 9.50 (9.75) per share based on SOTP and DCF valuations. Our rating remains BUY.
Aspo’s Q4 EBIT didn’t meet our expectations as ESL Shipping suffered from serious technical problems with cranes. Both MS Viikki and MS Haaga, the two new LNG vessels, were impacted, leading to inefficient operation. The warranty repairs should be completed by the end of Q1’19. Telko’s Q4 results were in line with our estimates, while Leipurin fell short. We update our rating to BUY (HOLD).
ESL is on path to EUR 25-30m EBIT in the coming years
The deployment of ESL Shipping’s new LNG vessels has been slowed down by both ships’ mechanical problems with cranes. The problem concerns all the six cranes. In the meantime, other ESL ships have been filling in the slack for the SSAB contract. The crane supplier, Cargotec MacGregor, is expected to fix the problem by the end of Q1. In other words, the first quarter of 2019 will be similarly sluggish for both vessels. While this is an inconvenient setback, the company expects the vessels to meet the high requirements starting from the second quarter. ESL Shipping has a target of net sales above EUR 200m and an EBIT margin of 12-15% by 2020. We expect ESL to reach an EBIT of EUR 23m in 2019 and EUR 28m next year. We previously expected comparable figures of EUR 25m and EUR 29m.
Telko should accelerate margin gains during 2019
Aspo has set Telko a 2020 sales target of EUR 300-350m, while the EBIT margin should be in the 6-7% range. One of the key measures for reaching this profitability level is the improvement of procurement efficiency. The company expects to see results regarding the planning and rationalization of raw material purchases by the end of 2019. Telko was able to reach an EBIT margin of 4.5% in 2018, improving by about 40bps.
Aspo long-term outlook intact, higher multiples boost SOTP
Our expectations for ESL and Telko are unchanged. Valuation multiples have lifted since late December, when Aspo revised its outlook for the final quarter. As a result, we see the sum-of-the-parts valuation providing added support for the shares. We raise our target price to EUR 9.75 (9.25) and upgrade to BUY rating.
Back in December, Aspo restated its 2018 EBIT guidance. The company announced that the figure will land at the lower end of the initial range. ESL and Telko both topped our Q4 revenue estimates, while ESL’s operating profit failed to match our expectations (even after we adjusted our estimate following the December profit warning).
Aspo announced the restructuring of its subsidiary Kauko. Effective in 2019, Aspo will no longer report Kauko as a separate segment. The corporate action does not come as a major surprise, yet Aspo also restated its 2018 EBIT guidance at the lower end of the initial range. We adjust our estimates for Kauko accordingly, while making small adjustments to ESL’s estimates due to the new LNG vessels taking longer than initially expected to reach their full operational efficiency.
Kauko plays a minor role in the sum-of-the-parts analysis
According to the plan, Kauko’s energy solutions business will be either sold off or terminated, while the offering for mobile knowledge work as well as Kauko’s administration will be restructured. The energy solutions business generates approximately one third of Kauko’s revenue. It was expected that Aspo might take more concrete measures regarding Kauko as the subsidiary has not been able to reach its targets. We recognize the announced EUR 5m goodwill impairment in Kauko’s Q4 EBIT.
We expect ESL’s acquisitions to lift 2019 EBIT to EUR 25m
We make slight adjustments to ESL’s estimates, reflecting the longer learning curve for the new LNG vessels to reach their full operational efficiency (Q4 EBIT EUR 1.2m lower than previously expected, 2019 EBIT lower by EUR 0.4m). Nevertheless, the new LNG vessels and the acquisition of AtoB@C are expected to be major contributors to next year’s EBIT growth. Our EBIT estimates for Telko and Leipurin remain unchanged.
Lower peer multiples cut our target to EUR 9.25 (EUR 10)
Overall, we don’t see any significant changes in Aspo’s operations. We expect Aspo’s 2018 EBIT at EUR 21.9m (including the EUR 5m impairment of Kauko). We retain our HOLD rating but decrease our target price to EUR 9.25 (EUR 10). The change in our target price mainly reflect’s Telko’s lowered peer multiple, while the write-down of Kauko figures only as a minor loss in the sum-of-the-parts valuation.
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Aspo aims for 8% operating margin, 5-10% p.a. revenue growth, above 20% ROE, and gearing of no more than 130%
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