Hanza : Extern analys ABG Sundal Collier

Equity Research - 28 July 2021 12:07 CET

HANZA

Cluster strategy playing out

• Q2 EBITA 12% better than ABGSCe on high margins
• EBITA estimates up 13-15% for '21e-'23e
• Fair value range raised to SEK 24-39 per share

A solid quarter despite shortages

Sales were in line with our estimates at SEK 634m (1% vs. ABGSCe of SEK 625m, 13% y-o-y and up 10% organically). While most of the end-markets have recovered to pre-pandemic levels, sales to its largest customer, active in the textile the industry, remained low, and even fell short of the corresponding quarter of FY'20. Hanza exceeded its pre-announced EBITA guidance with adj. EBITA of SEK 40m (12% vs. ABGSCe of 36m), resulting in a record adj. EBITA margin of 6.4% (2.7%) vs. ABGSCe of 5.8%. Both segments contributed to the margin expansion, explained by strong markets driving operational leverage. The mature manufacturing clusters achieved low double-digit operating margins, while the clusters that are in the build-up phase had lower margins, resulting in approximately 70% of HANZA having an operating margin of around 10% in Q2'21 (implies that the other 30% had a margin of about -0.2%). Hanza said that without the current component shortages, both sales and earnings would have been slightly higher.

Raised margin assumptions on solid cluster synergies

We leave sales for '21e-'23e relatively unchanged, and expect near-term sales growth to be driven by recovering volumes from its largest customer (textile industry in Germany) and broadly supported by the general industrial recovery seen in Q2'21, which we expect to persist at a high level throughout 2021. We raise '21e-'23e EBITA by 13-15% on higher margin assumptions following the highlighted margin potential in mature clusters. We note some downside risks relating to component shortages in H2'21e.

9x '22e EV/EBITA, 9% FCF yield and 9% '21-'23e EBITA CAGR

The share is trading at 9x '22e EV/EBITA, while offering a 34% '20-'23e adj. EBITA CAGR. In addition, the company says that assessments of acquisition targets are ongoing and will likely lead to more M&A, which would add to our estimates. We increase our fair valuation range to SEK 24-39(22-34) per share based on higher EBITA assumptions and reduced financial risk from the decreasing ND/EBITDA.

Analyst(s): [e-mail], [phone] [e-mail], [phone]

SEKm	2019	2020	2021e	2022e	2023e
Sales	2,068	2,155	2,403	2,645	2,823
EBITDA	149	139	227	250	270
EBITDA margin (%)	7.2	6.4	9.4	9.5	9.6
EBIT adj	76	56	131	145	157
EBIT adj margin (%)	3.7	2.6	5.5	5.5	5.6
Pretax profit	32	9	99	108	118
EPS rep	0.72	-0.04	2.16	2.36	2.58
EPS adj	1.63	1.22	2.73	2.80	3.05
Sales growth (%)	14.2	4.2	11.5	10.1	6.7
EPS growth (%)	-3.2	-106.0	5,157.3	9.0	9.5

Source: ABG Sundal Collier, Company data

Reason: Post-results comment

Company sponsored research

Not rated

Estimate changes (%)
	2021e	2022e	2023e
Sales	0.3%	0.3%	0.3%
EBIT (rep)	13.9%	16.0%	15.9%
EPS (rep)	24.9%	27.5%	27.0%

Source: ABG Sundal Collier
Share price (SEK)	27/07/2021	24.5
Fair value range (per share)	24-39
Capital Goods, Sweden
HANZA.ST/HANZA SS
MCap (SEKm)		877
MCap (EURm)		86
Net debt (EURm)		46
No. of shares (m)		35.8
Free float (%)		70
Av. daily volume (k)		13

Next event

Q3 report: 09 Nov

Performance

26.0

24.0

22.0

20.0

18.0

16.0

14.0

12.0

10.0

8.0

Sep 18 Nov 18

Sep 19

Nov 19

Jul 20 Sep 20

Nov 20

Jul 18

Jan 19

Mar 19 May 19

Jul 19

Jan 20

Mar 20

May 20

Jan 21 Mar 21

May 21

HANZA

OMX STH PI

	1m	3m	12m
Absolute (%)	13.4	33.9	75.6
Source: FactSet
	2021e	2022e	2023e
P/E (x)	11.3	10.4	9.5
P/E adj (x)	9.0	8.8	8.0
P/BVPS (x)	1.52	1.38	1.25
EV/EBITDA (x)	5.9	5.2	4.6
EV/EBIT adj (x)	10.2	8.9	7.9
EV/sales (x)	0.56	0.49	0.44
ROE adj (%)	18.6	16.5	16.3
Dividend yield (%)	1.0	3.0	3.2
FCF yield (%)	2.9	8.9	8.4
Lease adj. FCF yld (%)	2.9	8.9	8.4
Net IB debt/EBITDA	2.1	1.7	1.4
Lease adj. ND/EBITDA	1.3	1.0	1.2

Please refer to important disclosures at the end of this report

This research product is commissioned and paid for by the company covered in this report. As such, this report is deemed to

constitute an acceptableDocumentminor nondownloaded-monetary benefitby Maria(i.e. notANDERSSONinvestment research)(Hanza)s defined in MiFID II.

HANZA

Company description

HANZA is a manufacturing company founded in 2008 with the vision "all you need is one". This means that it aims to provide a complete manufacturing solution for its clients.

The company's manufacturing expertise spans over solutions within mechanics, electronics, cabling and assembly. HANZA's production sites are formed as clusters serving customers at a local level, with operations in the Nordic, Baltics, Asia and Central Europe.

Risks

HANZA's biggest risk is its exposure towards the overall economic cycle. In a recession, we expect that it will be difficult for HANZA to maintain its 10% sales growth target. Increased competition and consequent price pressure might affect the group negatively. Furthermore, it could be difficult for the company to find and hire the right competence during high-growth periods.

Annual sales and adj. EBIT margin, SEKm

Quarterly sales and adj. EBIT margin

3,000								6.0	700
2,500								5.0	600
2,000								4.0	500
1,500								3.0	400
							300
1,000								2.0	200
500								1.0	100
0								0.0	0
2015	2016	2017	2018	2019	2020	2021e	2022e	2023e
	Sales (LHS)			Adj EBIT margin % (RHS)

							7.0
							6.0
							5.0
							4.0
							3.0
							2.0
							1.0
Q1'20	Q2'20	Q3'20	Q4'20	Q1'21	Q2'21		0.0
Q3'21e	Q4'21e
	Sales (LHS)			Adj EBIT margin % (RHS)

Source: ABG Sundal Collier, Company data

Source: ABG Sundal Collier, Company data

EPS estimate changes, 2021e, SEK

2.2
2.1
2.0
1.9
1.8
1.7
1.6
1.5
1.4
1.3
1.2	20		20		20		20		20		20		21		21		21		21		21		21		21
Jul	-	Aug	-	Sep	-	Oct	-	Nov	-	Dec	-	Jan	-	Feb	-	Mar	-	Apr	-	May	-	Jun	-	Jul	-
								ABGSC					FactSet Consensus Mean

Source: ABG Sundal Collier, FactSet

EPS estimate changes, 2022e, SEK

2.4
2.3
2.2
2.1
2.0
1.9
1.8
1.7
1.6	20		20		20		20		20		20		21		21		21		21		21		21		21
Jul	-	Aug	-	Sep	-	Oct	-	Nov	-	Dec	-	Jan	-	Feb	-	Mar	-	Apr	-	May	-	Jun	-	Jul	-
								ABGSC					FactSet Consensus Mean

Source: ABG Sundal Collier, FactSet

Lease adj. net debt and ND/EBITDA

12-monthforward-looking P/E

400									12.0	24.0
350									10.0	22.0
300
								8.0	20.0
250									18.0
200									6.0	16.0
150									4.0	14.0
100										12.0
									2.0
50									10.0
0								2022e	0.0	8.0
2014	2015	2016	2017	2018	2019	2020	2021e	2023e
Jul-16

Net IB debt excl. leasing (LHS)		Net IB debt/EBITDA lease adj. (RHS)

Jul-17	Jul-18	Jul-19	Jul-20	Jul-21
		P/E f12m			5y avg

Source: ABG Sundal Collier, Company data

Source: ABG Sundal Collier, Company data

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HANZA

Deviation table

(SEKm)	Last year	Actual	ABGSC
	Q2 20	Q2 21	Q2 21e	Dev (%)
Net sales	559.0	633.8	625.5	1%
EBITA	-12.6	40.4	36.1	12%
Adj EBITA	14.9	40.4	36.1	12%
EBIT	-16.1	36.2	32.7	11%
Adj EBIT	11.4	36.2	32.7	11%
Net profit	-19.6	26.0	19.4	34%
EPS	-0.60	0.73	0.54	35%
EBITA margin	-2.3%	6.4%	5.8%	0.6%
Adj EBITA margin	2.7%	6.4%	5.8%	0.6%
EBIT margin	-2.9%	5.7%
Adj EBIT margin	2.0%	5.7%
EO	-27.5	0.0	0.0
Growth y-o-y	Last year	Actual	ABGSC	Dev (%)
Sales	10%	13%	12%	1%
adj. EBITA	-31%	171%	142%	29%
Net Profit	-342%	-233%
Per segment	Last year	Actual	ABGSC	Dev (%)
Sales
Key Markets	306	339	360	-6%
Other Markets	253	295	266	11%
Business Development	0.3	0	0	n.m.
adj. EBITA
Key Markets	10	27	24	13%
Other Markets	5	15	13	11%
Business Development	0.3	-1.1	-1	22%

EBITA margin
Key Markets	3.2%	7.9%	6.6%	1.3%
Other Markets	1.9%	5.0%	5.0%	0.0%
Business Development

Source: ABG Sundal Collier estimates, company data

28 July 2021

ABG Sundal Collier

3

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HANZA

Estimate changes

		Old			New		Change (%)		Change (SEKm)
	2021e	2022e	2023e	2021e	2022e	2023e	2021e	2022e	2023e	2021e	2022e	2023e
Net sales	2,394	2,636	2,813	2,403	2,645	2,823	0%	0%	0%	8	9	9
COGS	-1,278	-1,424	-1,514	-1,271	-1,428	-1,519	0%	0%	0%	6	-5	-5
Gross Profit	1,117	1,213	1,300	1,131	1,217	1,304	1%	0%	0%	14	4	4
Opex	-1,007	-1,088	-1,164	-1,006	-1,072	-1,147	0%	-1%	-1%	1	16	17
EBIT	110	125	136	125	145	157	14%	16%	16%	15	20	22
Adj EBIT	116	125	136	131	145	157	13%	16%	16%	15	20	22
D&A	-102	-105	-113	-102	-106	-113	0%	0%	0%	0	0	0
ow depreciation	-89	-91	-97	-88	-90	-96	-1%	-1%	-1%	1	0	1
ow amortization	-14	-15	-16	-14	-16	-17	6%	6%	6%	-1	-1	-1
EBITDA	212	230	248	227	250	270	7%	9%	9%	15	20	22
EBITA	123	140	152	139	160	174	13%	15%	15%	16	21	22
Adj EBITA	129	140	152	145	160	174	12%	15%	15%	16	21	22
Net financials	-28	-37	-39	-26	-37	-40	-5%	0%	0%	1	0	0
Tax	-20	-22	-24	-21	-23	-26	6%	8%	8%	-1	-2	-2
EO	-6	0	0	-6	0	0
Net profit	62	66	73	77	84	92	25%	27%	27%	15	18	20
EPS diluted (SEK)	1.74	1.85	2.03	2.17	2.36	2.58	25%	27%	27%	0.43	0.51	0.55
Gross margin	46.6%	46.0%	46.2%	47.1%	46.0%	46.2%	0.4%	0.0%	0.0%
EBITA margin	5.2%	5.3%	5.4%	5.8%	6.1%	6.2%	0.6%	0.8%	0.8%
Adj EBITA margin	5.4%	5.3%	5.4%	6.1%	6.1%	6.2%	0.6%	0.8%	0.8%
EBITDA	8.9%	8.7%	8.8%	9.4%	9.5%	9.6%	0.6%	0.7%	0.7%

Source: ABG Sundal Collier estimates, company data

28 July 2021	ABG Sundal Collier	4
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HANZA

Detailed financials, quarterly

Quarterly overview, SEKm	Q1'19	Q2'19	Q3'19	Q4'19	Q1'20	Q2'20	Q3'20	Q4'20	Q1'21	Q2'21	Q3'21e	Q4'21e
Sales	498	507	516	548	599	559	503	494	567	634	590	612
COGS	-272	-280	-280	-288	-321	-322	-292	-265	-307	-336	-311	-318
Gross Profit	225	226	236	260	278	237	211	229	260	298	279	294
SG&A	-208	-209	-221	-252	-262	-254	-196	-213	-241	-262	-245	-258
EBIT	17	17	14	8	17	-16	15	15	19	36	34	36
Non-recurring items	-6	-2	-7	-5	0	-28	0	3	-6	0	0	0
Adj. EBIT	23	19	21	13	17	11	15	13	25	36	34	36
Amortisation	-2	-2	-3	-4	-4	-4	-6	-3	-4	-4	-3	-3
Adj. EBITA	25	22	24	17	20	15	21	16	29	40	38	39
Net financial expenses	-6	-5	-8	-5	-7	-4	-6	-5	-7	-6	-7	-7
PTP	11	12	6	3	10	-20	9	11	12	31	28	29
Taxes	-2	-4	-5	3	-3	1	-3	-5	-3	-5	-7	-7
NCI	0	0	0	0	0	0	0	0	0	0	0	0
Net Profit	9	8	1	5	6	-20	7	5	9	26	21	21
Margin and growth metrics	Q1'19	Q2'19	Q3'19	Q4'19	Q1'20	Q2'20	Q3'20	Q4'20	Q1'21	Q2'21	Q3'21e	Q4'21e
Sales growth	13%	0%	20%	27%	20%	10%	-2%	-10%	-5%	13%	17%	24%
Gross margin	45.3%	44.7%	45.7%	47.4%	46.5%	42.5%	41.9%	46.3%	45.9%	47.0%	47.3%	48.0%
EBIT margin	3.5%	3.4%	2.8%	1.5%	2.8%	-2.9%	3.0%	3.1%	3.3%	5.7%	5.8%	5.8%
Adj. EBIT margin	4.6%	3.8%	4.1%	2.4%	2.8%	2.0%	3.0%	2.6%	4.4%	5.7%	5.8%	5.8%
Adj. EBITA margin	5.0%	4.2%	4.7%	3.0%	3.4%	2.7%	4.3%	3.3%	5.0%	6.4%	6.4%	6.4%
Tax rate	20.2%	31.4%	85.2%	-83.3%	32.6%	3.4%	27.5%	50.9%	22.9%	15.3%	25.0%	25.0%
EBIT y-o-y	-6.0%-21.2%-16.4%	n.m	-2.9%	n.m	n.m	n.m	n.m	n.m	125.4%	131.6%
Sales per segment, SEKm	Q1'19	Q2'19	Q3'19	Q4'19	Q1'20	Q2'20	Q3'20	Q4'20	Q1'21	Q2'21	Q3'21e	Q4'21e
Key markets	249	268	287	308	338	306	266	255	301	339	334	349
Other markets	248	239	229	239	261	253	239	238	267	295	255	263
Group	498	507	516	547	599	559	505	494	567	634	590	612
Segment adj. EBITA SEKm	Q1'19	Q2'19	Q3'19	Q4'19	Q1'20	Q2'20	Q3'20	Q4'20	Q1'21	Q2'21	Q3'21e	Q4'21e
Key markets	17	19	28	8	19	10	11	11	19	27	26	28
Other markets	8	2	-1	9	2	5	10	10	10	15	12	12
Business Development	0	0	-3	-1	-1	0	0	-3	-1	-1	-1	-1
Group	25	21	24	16	20	15	21	19	29	40	38	39
NRI	-6	-2	-7	-5	0	-28	0	3	-6	0	0	0
adj. EBITA-margin	Q1'19	Q2'19	Q3'19	Q4'19	Q1'20	Q2'20	Q3'20	Q4'20	Q1'21	Q2'21	Q3'21e	Q4'21e
Key markets	6.7%	7.1%	9.7%	2.7%	5.6%	3.2%	4.3%	4.3%	6.3%	7.9%	7.9%	7.9%
Other markets	3.3%	0.8%	-0.5%	3.8%	0.8%	1.9%	4.3%	4.4%	3.9%	5.0%	4.7%	4.7%
Group	5.0%	4.0%	4.7%	3.0%	3.4%	2.7%	4.2%	3.8%	5.0%	6.4%	6.4%	6.4%
Other metrics R12m	Q1'19	Q2'19	Q3'19	Q4'19	Q1'20	Q2'20	Q3'20	Q4'20	Q1'21	Q2'21	Q3'21e	Q4'21e
FCF conversion	-141%	552%	-5100%	-25%	719%	n.m	74%	1144%	304%	-83%	-434%	35%
ND/EBITDA	3.0	2.7	4.5	3.6	3.4	3.7	3.7	3.2	3.6	2.9	2.3	2.0
NWC / Sales	9%	8%	15%	14%	13%	12%	12%	9%	10%	12%	16%	16%
ROE	5%	4%	2%	5%	4%	-1%	0%	0%	0%	9%	11%	13%
ROIC	5%	5%	3%	4%	4%	2%	2%	3%	3%	7%	8%	9%

Source: ABG Sundal Collier estimates, company data

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