REDEYE Equity Research | Hanza Holding 27 July 2021 |
Hanza Q2'21 Review: Solid Earnings Growth Likely to Continue
Redeye raises its Base case and forecasts following a solid Q2 report, showing significant margin improvements. While some areas are far from their potential profit level, Hanza generates its highest EBITA margin since at least 2017. As demand is likely to increase further, we believe profits are set for further expansions.
- EBITA 2021E and 2022E raised by 10% and 13%.
- Trading at 8x EBITA 2022E
- New Base case SEK 30 (25)
Hanza continues to improve its margins and strengthens our view of its cluster strategy. While the share is up by ~75% year-to-date, considering Hanza's improving track record, profit growth, and discount to peers, we believe there is room for more. We raise our Base case to SEK 30 (25).
Q2'2021
Actuals vs Forecast - 2Q21 | ||||
(SEKm) | 2Q20 | 2Q21 | 2Q21E | Diff |
Net sales | 559 | 634 | 604 | 4.9% |
Growth YoY | 10.3% | 13.4% | 8.1% | |
Main Markets | 306 | 339 | 346 | -2.2% |
Growth YoY | 10.8% | 13.3% | ||
Other Markets | 253 | 295 | 258 | 14.3% |
Growth YoY | 16.6% | 2.0% | ||
Adj. EBITA | 14.9 | 40.4 | 30.1 | 34.2% |
Adj. EBITA margin | 2.7% | 6.4% | 5.0% | |
Main Markets | 9.7 | 26.8 | 20.8 | 29.0% |
Adj. EBITA margin | 3.2% | 7.9% | 6.0% | |
Other Markets | 4.9 | 14.7 | 10.3 | 42.5% |
Adj. EBITA margin | 1.9% | 5.0% | 4.0% | |
EBITA | -12.6 | 40.4 | 28.1 | 43.8% |
EBITA margin | -2.3% | 6.4% | 4.6% | |
Source: Redeye Research, Hanza |
Sales grow by about 13% y/y to SEK 634m, which was approximately 5% above our forecast of SEK 604m. Organic growth was about 10%. In addition to a Covid-related rebound, new orders and projects in several regions and various segments contributed to the sales growth. However, despite solid y/y growth, sales and EBITA were dampened by shortages of materials and components. Also, Hanza's largest customer, active in the textile industry, remained at low levels. Thus, there is potential for larger volumes in the future.
Adjusted EBITA more than doubled relative to Q2 last year, which was heavily affected by the Corona crisis, to SEK 40.4m (14.9). The outcome was significantly higher than our forecast of SEK 30.1m and above the preliminary figure of SEK >35m. Both Main Markets and Other Markets came in above our expectations. Also, 70% of Hanza's businesses had margins of above 10% in Q2, highlighting the strengths of Hanza's cluster strategy.
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REDEYE Equity Research | Hanza Holding 27 July 2021 | |||||||||||||||
Main Markets (Nordics and Germany) had an EBITA margin of 7.9%, almost in line with | ||||||||||||||||
previous peak levels. Considering the low demand from Hanza's largest customer, a German | ||||||||||||||||
business with exposure to the textile industry, we believe the cluster has improved its | ||||||||||||||||
underlying efficiency, indicating the potential for even higher levels following a rebound in the | ||||||||||||||||
textile market. Also, management sees great opportunities in the German market as the | ||||||||||||||||
country opens following the pandemic. | ||||||||||||||||
Other Markets (Baltics, Central Europe, and China) had an EBITA margin of 5.0%, substantially | ||||||||||||||||
below Main Markets, but still significantly improved from last year's 1.9%. The main reason | ||||||||||||||||
for the difference in the margin is the maturity of the clusters. Nevertheless, the R12m margin | ||||||||||||||||
is about 4%, which is the best level in Other Markets so far, indicating that the efficiency | ||||||||||||||||
measures in immature clusters are paying off. Also, the Narva factory and the Central | ||||||||||||||||
European cluster still had a negative impact from the pandemic. | ||||||||||||||||
During the first half of 2021, Hanza has decided to invest SEK ~65m in production facilities. | ||||||||||||||||
The investments are broad regarding both technologies and regions, targeting Sweden, | ||||||||||||||||
Estonia, and China. We believe the investments in increased production facilities are a clear | ||||||||||||||||
sign that management is confident in larger volumes in the mid-term. | ||||||||||||||||
Despite appreciating by ~75% Year-to-date, Hanza is still trading at a discount to peers. | ||||||||||||||||
Considering the solid operational performance lately, especially in this Q2, we believe Hanza | ||||||||||||||||
is attractively priced. | ||||||||||||||||
EV | Sales | EV/SALES | EV/EBIT (x) | Sales growth | EBIT margin | |||||||||||
Company | (local) | 20A | 20A | 21E | 22E | 20A | 21E | 22E | 20A | 21E | 22E | 20A | 21E | 22E | ||
Incap | 222 | 106 | 2.1 | 1.7 | 1.5 | 18 | 12 | 10 | 50% | 24% | 12% | 11.7% | 14.5% | 14.7% | ||
Kitron | 3 467 | 3 962 | 0.9 | 0.8 | 0.8 | 11 | 12 | 10 | 21% | 3% | 10% | 7.8% | 7.2% | 7.5% | ||
Nolato | 24 565 | 9 359 | 2.6 | 2.2 | 2.0 | 23 | 19 | 17 | 18% | 22% | 8% | 11.2% | 11.5% | 11.6% | ||
Scanfil | 525 | 595 | 0.9 | 0.8 | 0.8 | 12 | 12 | 11 | 3% | 10% | 4% | 7.3% | 6.7% | 6.9% | ||
Inission | 701 | 1 059 | 0.7 | 0.7 | 0.6 | 15 | 16 | 11 | 8% | -2% | 9% | 4.5% | 4.3% | 5.7% | ||
NCAB | 9 182 | 2 115 | 4.3 | 3.1 | 2.9 | 52 | 30 | 28 | 19% | 39% | 9% | 8.3% | 10.6% | 10.2% | ||
Elos Medtech | 1 735 | 580 | 3.0 | 2.3 | 2.1 | 30 | 16 | 15 | -16% | 29% | 12% | 9.9% | 14.3% | 13.8% | ||
Median | 1 735 | 1 059 | 2.1 | 1.7 | 1.5 | 18 | 16 | 11 | 18% | 22% | 9% | 8% | 11% | 10% | ||
Average | 5 771 | 2 540 | 2.1 | 1.7 | 1.5 | 23 | 16 | 15 | 15% | 18% | 9% | 9% | 10% | 10% | ||
Hanza Holding | 1 348 | 2 155 | 0.7 | 0.7 | 0.6 | 30 | 11 | 8 | 4% | 9% | 9% | 1% | 5% | 6% | ||
Source: Redeye, FactSet |
Financial Forecasts
As the actual Q2 numbers came in above the preliminary figures while several business areas still suffered from the pandemic, we believe the underlying business is performing better than we previously thought. We raise our sales forecasts by ~2% for 2021 and 2022, which, combined with increasing our margin assumptions, results in a 13-14% raise of our EBITA forecasts.
We expect a rebound in both Main Markets and Other Markets as some areas still are negatively affected by the pandemic. Also, in Main Markets, we believe acquisitions will contribute to about 15% sales growth in H2 2021. We believe margins will continue to expand as demand picks up further and as more clusters get mature.
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REDEYE Equity ResearchHanza Holding 27 July 2021
Estimate revisions Q2 2021 | ||||||
2021 | 2022 | |||||
(SEKm) | New | Prev. | Change | New | Prev. | Change |
Net sales | 2359 | 2324 | 1.5% | 2571 | 2525 | 1.8% |
Growth | 9% | 8% | 9% | 9% | ||
Adj. EBITA | 142 | 129 | 9.9% | 172 | 152 | 12.8% |
Adj. EBITA margin | 6.0% | 5.6% | 6.7% | 6.0% | ||
EBIT | 122 | 107 | 13.2% | 158 | 138 | 14.1% |
EBIT margin | 5.2% | 4.6% | 6.1% | 5.5% | ||
Source: Redeye Research |
Financial forecasts Base-case | |||||||
(SEKm) | 2020 | 1Q21 | 2Q21 | 3Q21E | 4Q21E | 2021E | 2022E |
Net sales | 2155 | 567 | 634 | 582 | 576 | 2359 | 2571 |
Growth YoY | 4.2% | -5.3% | 13.4% | 15.8% | 16.6% | 9.5% | 9.0% |
Adj. EBITA | 70.0 | 28.5 | 40.4 | 36.3 | 37.0 | 142.2 | 171.8 |
Adj. EBITA margin | 3.2% | 5.0% | 6.4% | 6.2% | 6.4% | 6.0% | 6.7% |
EBIT | 31.3 | 19.0 | 36.2 | 32.8 | 33.5 | 121.5 | 157.8 |
EBIT margin | 1.5% | 3.3% | 5.7% | 5.6% | 5.8% | 5.2% | 6.1% |
Source: Redeye Research, Hanza | |||||||
Main Markets - Financial forecasts Base-case | |||||||
(SEKm) | 2020 | 1Q21 | 2Q21 | 3Q21E | 4Q21E | 2021E | 2022E |
Net sales | 1165 | 301 | 339 | 316 | 318 | 1275 | 1421 |
Growth YoY | 4.7% | -10.9% | 10.8% | 19.1% | 24.7% | 9.4% | 11.5% |
Adj. EBITA | 51.0 | 19.0 | 26.8 | 24.1 | 24.8 | 94.7 | 112.6 |
Adj. EBITA margin | 4.4% | 6.3% | 7.9% | 7.6% | 7.8% | 7.4% | 7.9% |
Source: Redeye Research, Hanza | |||||||
Other Markets - Financial forecasts Base-case | |||||||
(SEKm) | 2020 | 1Q21 | 2Q21 | 3Q21E | 4Q21E | 2021E | 2022E |
Net sales | 990 | 267 | 295 | 266 | 257 | 1085 | 1150 |
Growth YoY | 3.7% | 2.0% | 16.6% | 12.0% | 8.0% | 9.6% | 6.0% |
Adj. EBITA | 24.9 | 10.4 | 14.7 | 13.3 | 13.1 | 51.5 | 63.2 |
Adj. EBITA margin | 2.5% | 3.9% | 5.0% | 5.0% | 5.1% | 4.7% | 5.5% |
Source: Redeye Research, Hanza |
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REDEYE Equity Research | Hanza Holding 27 July 2021 |
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Redeye Rating (2021-07-27) | |||
Rating | People | Business | Financials |
5p | 19 | 15 | 3 |
3p - 4p | 99 | 76 | 37 |
0p - 2p | 6 | 33 | 84 |
Company N | 124 | 124 | 124 |
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CONFLICT OF INTERESTS
Fredrik Nilsson owns shares in the company : No
Redeye performs/have performed services for the Company and receives/have received compensation from the Company in connection with this.
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Hanza Holding AB published this content on 28 July 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 28 July 2021 10:43:08 UTC.