SinterCast : ABG Review 19 August 2021

Equity Research - 19 August 2021 12:50 CET

SinterCast

EBIT deviation from delayed installations

• Q2: EBIT of SEK 7.2m (-43% vs. ABGSCe at 12.6m)
• '21e EBIT -14% on Q2 numbers, -3% for '22e-'23e
• Fair value range of SEK 132-240(137-248) per share

Delayed installation activity causes Q2 miss

SinterCast reported Q2 sales of SEK 28.2m (-16% vs. ABGSCe at 33.6m), up 51% y-o-y. The deviation was mainly from equipment sales of SEK 0.2m (ABGSCe 3.3m), as travel restrictions caused installations to be delayed until H2'21. However, management says full-year installation revenues should still be in line with past averages. Series production sales were strong, but at SEK 27.8m were slightly below our estimate of SEK 29.7m. EBIT was SEK 7.2m (-43% vs ABGSCe at 12.6m), for a margin of 26% (ABGSCe 37%). In absolute terms, the deviation on the EBIT level is roughly the same as on the top line, meaning the main reason for the miss was lower sales, which had a high drop-through. The EBIT margin was also hurt by a lower gross margin, but in absolute terms, this effect was negligible. Management mentioned that series production volumes, although strong, are still being held back by customers facing component shortages and therefore not producing at normal levels.

EBIT down on revised installation estimates

We lower EBIT for '21e by 14% (SEK 6m in absolute terms) and by 3% for '22e-'23e, mostly from the lower Q2 numbers and revising our equipment sales estimates. We also move some installation revenues from H2'21 into '22e to account for the risk of more delays. Despite our cuts, we maintain that the outlook is positive, as we argue customers will need to re-stock inventories once component shortages are behind us, which bodes well for series production revenues.

Trading at 18x '22e EV/EBIT; fair value range lowered

On our estimates, the share is trading at 18x '22e EV/EBIT. We lower our fair value range to SEK 132-240(137-248) per share based on our estimate cuts. As the company has a history of paying out ~100% of EPS as dividends, we derive our fair value range by discounting future dividends, assuming a range of 8-12% for the cost of equity.

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

SEKm	2019	2020	2021e	2022e	2023e
Sales	117	95	112	145	163
EBITDA	43	25	39	59	71
EBITDA margin (%)	37.2	26.6	34.7	40.9	43.7
EBIT adj	45	21	35	55	67
EBIT adj margin (%)	38.6	22.1	31.2	38.0	41.2
Pretax profit	40	22	33	55	67
EPS rep	6.80	3.12	5.58	9.10	10.79
EPS adj	7.49	3.04	5.58	9.10	10.79
Sales growth (%)	32.8	-18.1	17.2	30.0	12.4
EPS growth (%)	47.4	-54.0	78.6	63.0	18.6

Source: ABG Sundal Collier, Company data

Reason: Post-results comment

Company sponsored research

Not rated

Estimate changes (%)
	2021e	2022e	2023e
Sales	-6.4%	-1.6%	-1.8%
EBIT (rep)	-14.5%	-3.2%	-3.3%
EPS (rep)	-6.3%	-2.8%	-2.9%
Source: ABG Sundal Collier
Share price (SEK)	19/08/2021	148.0
Fair value range (per share)		132-240
Capital Goods, Sweden
SINT.ST/SINT SS
MCap (SEKm)			1,049
MCap (EURm)			103
Net debt (EURm)			-3
No. of shares (m)			7.1
Free float (%)			99
Av. daily volume (k)			8

Next event

Q3 report: 27 Oct

Performance

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Aug 18

Oct 18 Dec 18

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Apr 19 Jun 19

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Oct 19

Dec 19

Feb 20

Apr 20

Jun 20

Aug 20

Oct 20 Dec 20

Feb 21 Apr 21 Jun 21

SinterCast

OMX STH PI

	1m	3m	12m
Absolute (%)	-1.9	1.5	1.4
Source: FactSet
	2021e	2022e	2023e
P/E (x)	26.5	16.3	13.7
P/E adj (x)	26.5	16.3	13.7
P/BVPS (x)	8.74	7.24	6.69
EV/EBITDA (x)	26.3	17.1	14.2
EV/EBIT adj (x)	29.3	18.3	15.1
EV/sales (x)	9.12	6.98	6.23
ROE adj (%)	34.6	48.7	50.7
Dividend yield (%)	3.8	6.1	7.3
FCF yield (%)	2.9	4.5	5.9
Lease adj. FCF yld (%)	2.8	4.4	5.8
Net IB debt/EBITDA	-0.7	-0.6	-0.4
Lease adj. ND/EBITDA	-0.9	-0.7	-0.5

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 acceptableDocumentminordownloadednon-monetarybybenefitLinn(iFREDRIKSSON.e. not investment research)(SinterCast)as defined in MiFID II.

SinterCast

Company description

SinterCast is a leading supplier of online process control technology and know-how for the reliable high-volume production of Compacted Graphite Iron (CGI). The material is stronger than traditional iron, which enables downsizing, increased thermal and mechanical loading, and increased engine performance. The technology is primarily used in diesel engines for larger passenger vehicles such as SUVs and pick-ups as well as commercial vehicles and offroad equipment.

Risks

Automotive demand, and more specifically demand for larger passenger vehicles such as SUVs and pick-up trucks with diesel engines. Regulation relating to fossil fuels and diesel in particular poses risks to the business model.

Annual sales and adj. EBIT margin

Quarterly sales and adj. EBIT margin

180								45.0	35
160								40.0	30
140								35.0
							25
120								30.0
100								25.0	20
80								20.0	15
60								15.0	10
40								10.0
							5
20								5.0
0								0.0	0
2015	2016	2017	2018	2019	2020	2021e	2022e	2023e
	Sales (LHS)			Adj EBIT margin % (RHS)

							40.0
							35.0
							30.0
							25.0
							20.0
							15.0
							10.0
							5.0
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

7.4
7.2
7.0
6.8
6.6
6.4
6.2
6.0
5.8
5.6
5.4	20		20		20		20		20		21		21		21		21		21		21		21		21
Aug	-	Sep	-	Oct	-	Nov	-	Dec	-	Jan	-	Feb	-	Mar	-	Apr	-	May	-	Jun	-	Jul	-	Aug	-
								ABGSC						FactSet Consensus Mean

Source: ABG Sundal Collier, FactSet

EPS estimate changes, 2022e, SEK

10.4
10.2
10.0
9.8
9.6
9.4
9.2
9.0
8.8	20		20		20		20		20		21		21		21		21		21		21		21		21
Aug	-	Sep	-	Oct	-	Nov	-	Dec	-	Jan	-	Feb	-	Mar	-	Apr	-	May	-	Jun	-	Jul	-	Aug	-
								ABGSC						FactSet Consensus Mean

Source: ABG Sundal Collier, FactSet

Lease adj. net debt and ND/EBITDA		12month forward-looking P/E
0									0.0	28.0
-10									-0.5	26.0
								-1.0	24.0
-20									-1.5	22.0
-30									-2.0	20.0
								-2.5	18.0
-40									-3.0	16.0
-50									-3.5	14.0
								-4.0	12.0
-60									-4.5
								10.0
2014	2015	2016	2017	2018	2019	2020	2021e	2022e	2023e
Aug-16	Aug-17	Aug-18	Aug-19	Aug-20	Aug-21

		Net IB debt excl. leasing (LHS)		Net IB debt/EBITDA lease adj. (RHS)			P/E f12m		5y avg
Source: ABG Sundal Collier, Company data
Source: ABG Sundal Collier, Company data

19 August 2021

ABG Sundal Collier

2

Document downloaded by Linn FREDRIKSSON (SinterCast)

SinterCast

Q2'21 expectation vs. outcome

Deviation table Income statement Revenue

Gross profit

Opex

EBIT

PTP

Net profit

Growth and margins Revenue grow th EBIT grow th

Gross margin EBIT margin

Sales by segment

Equipment

Series Production

Engineering Service

Total revenue Other metrics Sampling cups Annualised engine eq. (mn)

Last yr. Actual Q2'20 Q2'21

18.7 28.2

12.9 19.7

-12.1-12.5

0.8 7.2

3.0	7.4
3.0	11.4
Q2'20	Q2'21
-44%	51%
-94%	800%
69%	70%
4%	26%
Q2'20	Q2'21
6.1	0.2
12.5	27.8
0.1	0.2
18.7	28.2
Q2'20	Q2'21
19,800	73,600
1.60	3.20

		ABGSCe
y-o-y Q2'21e	Dev %	Dev SEKm
51%	33.6	-16%	-5.4
53%	25.2	-22%	-5.5
3%	-12.6	-1%	0.1
800%	12.6	-43%	-5.4
147%	12.6	-41%	-5.2
280%	13.5	-16%	-2.1
y-o-y Q2'21e	Dev %	Dev SEKm
	80%	-29%
	1474%	-674%
1%	75%	-5%
21%	37%	-12%
y-o-y	Q2'21e	Dev %	Dev SEKm
-97%	3.3	-94%	-3.1
122%	29.7	-6%	-1.9
100%	0.6	-67%	-0.4
51%	33.6	-16%	-5.4
y-o-y Q2'21e	Dev %	Dev SEKm
285%	76,300	-4%
100%	3.20	0%

Source: ABG Sundal Collier estimates, company data

Estimate changes, '21e-'23e

Estimate changes	Old forecast	New forecast	SEKm change		% change
SEKm	2021e	2022e	2023e	2021e	2022e	2023e	2021e	2022e	2023e	2021e	2022e	2023e
Revenue	119	148	166	112	145	163	-8	-2	-3	-6%	-2%	-2%
Gross profit	88	112	126	81	110	124	-7	-2	-2	-8%	-2%	-2%
Opex	-48	-55	-57	-46	-55	-57	1	0	0	-3%	0%	0%
EBIT	41	57	70	35	55	67	-6	-2	-2	-14%	-3%	-3%
PTP	39	57	70	33	55	67	-6	-2	-2	-15%	-3%	-3%
Net profit	42	66	79	40	64	77	-3	-2	-2	-6%	-3%	-3%
Growth and margins	2021e	2022e	2023e	2021e	2022e	2023e	2021e	2022e	2023e	2021e	2022e	2023e
Revenue grow th	25%	24%	13%	17%	30%	12%				-8%	6%	0%
EBIT grow th	88%	40%	22%	61%	59%	22%				-27%	19%	0%
Gross margin	74%	76%	76%	73%	76%	76%				-1%	0%	0%
EBIT margin	34%	39%	42%	31%	38%	41%				-3%	-1%	-1%
Sales split	2021e	2022e	2023e	2021e	2022e	2023e	2021e	2022e	2023e	2021e	2022e	2023e
Equipment	13	14	15	8	12	12	-5	-2	-3	-35%	-17%	-20%
Series Production	104	130	148	101	130	148	-3	0	0	-3%	0%	0%
Engineering Service	3	3	4	2	3	4	0	0	0	-15%	0%	0%
Total revenue	119	148	166	112	145	163	-8	-2	-3	-6%	-2%	-2%
Other metrics	2021e	2022e	2023e	2021e	2022e	2023e	2021e	2022e	2023e	2021e	2022e	2023e
Sampling cups	218,465 189,960 199,500	215,765 189,960 199,500	-2,700	0	0	-1%	0%	0%
Annualised engine eq. (mn)	3.15	4.30	5.00	3.15	4.30	5.00	0.00	0.00	0.00	0%	0%	0%

Source: ABG Sundal Collier estimates

19 August 2021	ABG Sundal Collier	3
	Document downloaded by Linn FREDRIKSSON (SinterCast)

SinterCast

Detailed quarterly figures

Quarterly overview	Q1'19	Q2'19	Q3'19	Q4'19	Q1'20	Q2'20	Q3'20	Q4'20	Q1'21	Q2'21	Q3'21e	Q4'21e
Revenue	22.9	33.5	30.8	29.3	24.6	18.7	19.2	32.9	24.3	28.2	28.3	31.1
Gross profit	18.4	25.4	24.6	20.6	17.6	12.9	14.6	23.3	17.1	19.7	21.2	23.3
SG&A	-7.8	-9.1	-8.4	-10.9	-8.9	-7.3	-7.5	-9.8	-8.7	-9.0	-9.0	-10.3
R&D	-2.2	-2.7	-3.0	-4.1	-3.3	-2.3	-3.2	-2.9	-2.6	-2.8	-2.8	-2.8
Other opex	0.5	-0.7	1.3	-1.8	2.5	-2.5	-0.3	-1.3	2.7	-0.8	-0.2	-0.2
EBIT	8.9	12.9	14.5	3.8	7.9	0.8	3.6	9.3	8.5	7.2	9.2	10.0
Net financials	-0.6	0.3	-0.3	0.4	-1.3	2.2	0.1	-0.3	-1.6	0.2	0.0	0.0
PTP	8.3	13.2	14.2	4.2	6.6	3.0	3.7	9.0	6.9	7.4	9.2	10.0
Taxes	0.0	0.9	0.0	7.4	0.0	0.0	0.0	-0.1	0.0	4.0	1.0	1.1
Net profit	8.3	14.1	14.2	11.6	6.6	3.0	3.7	8.9	6.9	11.4	10.2	11.1
Growth and margins	Q1'19	Q2'19	Q3'19	Q4'19	Q1'20	Q2'20	Q3'20	Q4'20	Q1'21	Q2'21	Q3'21e	Q4'21e
Revenue grow th	38%	25%	56%	19%	7%	-44%	-38%	12%	-1%	51%	47%	-6%
EBIT grow th	82%	17%	142%	-49%	-11%	-94%	-75%	145%	8%	795%	155%	8%
Gross margin	80%	76%	80%	70%	72%	69%	76%	71%	70%	70%	75%	75%
EBIT margin	39%	39%	47%	13%	32%	4%	19%	28%	35%	25%	33%	32%
Sales split	Q1'19	Q2'19	Q3'19	Q4'19	Q1'20	Q2'20	Q3'20	Q4'20	Q1'21	Q2'21	Q3'21e	Q4'21e
Equipment	0.5	6.6	2.4	2.4	0.4	6.1	0.3	9.8	1.5	0.2	1.0	5.5
Series Production	22.2	26.7	28.2	25.2	23.8	12.5	18.8	21.9	22.4	27.8	26.7	24.5
Engineering Service	0.2	0.2	0.2	1.7	0.5	0.1	0.1	1.1	0.4	0.2	0.6	1.1
Total revenue	22.9	33.5	30.8	29.3	24.7	18.7	19.2	32.8	24.3	28.2	28.3	31.1
Other 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
Sampling cups	36,800	49,400	55,700	47,900	45,100	19,800	32,900	42,800	44,600	73,600	51,065	46,500
y-o-y	13%	-28%	30%	-11%	23%	-60%	-41%	-11%	-1%	272%	55%	9%
Annualised engine eq. (mn)	3.10	3.40	3.50	3.10	2.90	1.60	2.80	2.60	2.90	3.20	3.40	3.10
y-o-y	24%	26%	52%	19%	-6%	-53%	-20%	-16%	0%	100%	21%	19%
Working capital / sales R12m	24%	29%	25%	22%	21%	18%	22%	25%
Net debt/cash	-36	-25	-41	-30	-39	-45	-42	-22
ND/EBITDA	-1.0	-0.7	-0.9	-0.7	-0.9	-1.4	-2.1	-0.9
Equity ratio	86%	88%	90%	88%	86%	85%	86%	85%
FCF conversion (lease adj.)	59%	65%	68%	74%	81%	110%	80%	106%
ROCE	33%	37%	42%	38%	34%	23%	13%	19%
Source: ABG Sundal Collier estimates, company data

Detailed annual figures

Annual overview	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021e	2022e	2023e
Revenue	45.9	51.9	54.5	72.4	75.4	65.6	87.7	116.5	95.4	111.8	145.4	163.4
Gross profit	32.2	37.3	40.8	55.4	58.8	50.6	68.9	89.0	68.4	81.3	110.5	124.2
SG&A	-26.2	-24.6	-24.7	-26.4	-25.0	-25.0	-28.8	-36.2	-33.5	-37.0	-38.8	-40.5
R&D	-5.5	-5.8	-6.5	-7.6	-7.9	-7.3	-10.3	-12.0	-11.6	-11.0	-15.4	-15.4
Other opex	0.5	0.4	0.6	-1.1	0.5	-0.6	-0.4	-0.7	-1.6	1.5	-1.0	-1.0
EBIT	1.0	7.3	10.2	20.3	26.4	17.7	29.4	40.1	21.7	34.9	55.3	67.3
Net financials	1.0	0.2	1.3	4.6	-0.6	0.0	0.0	-0.2	0.6	-1.4	0.0	0.0
PTP	2.0	7.5	11.5	24.9	25.8	17.7	29.4	39.9	22.3	33.5	55.3	67.3
Taxes	-5.7	0.6	0.9	0.8	1.0	0.9	3.3	8.3	-0.1	6.1	9.2	9.2
Net profit	-3.7	8.1	12.4	25.7	26.8	18.6	32.7	48.2	22.2	39.6	64.5	76.5
EPS	-0.5	1.2	1.7	3.6	3.8	2.6	4.6	6.8	3.1	5.6	9.1	10.8
DPS	1.0	1.2	2.2	3.5	4.0	2.8	5.0	3.5	4.0	5.6	9.1	10.8
Growth and margins	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021e	2022e	2023e
Revenue grow th	-6%	13%	5%	33%	4%	-13%	34%	33%	-18%	17%	30%	12%
EBIT grow th	-91%	630%	40%	99%	30%	-33%	66%	36%	-46%	61%	59%	22%
Gross margin	70%	72%	75%	77%	78%	77%	79%	76%	72%	73%	76%	76%
EBIT margin	2%	14%	19%	28%	35%	27%	34%	34%	23%	31%	38%	41%
Sales split	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021e	2022e	2023e
Equipment	9.0	10.1	4.9	7.7	7.1	3.7	4.6	11.9	16.6	8.2	12.0	12.0
Series Production	35.8	44.1	47.8	63.6	66.4	60.7	81.3	102.3	77.0	101.3	130.0	147.9
Engineering Service	1.0	1.5	1.8	1.1	1.8	1.2	1.8	2.3	1.8	2.3	3.4	3.5
Total revenue	45.8	55.7	54.5	72.4	75.3	65.6	87.7	116.5	95.4	111.8	145.4	163.4
Other metrics	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021e	2022e	2023e
Sampling cups	102,400	118,500	133,000	153,000	168,800	144,600	197,900	189,800	140,600	215,765	189,960	199,500
y-o-y	-26%	16%	12%	15%	10%	-14%	37%	-4%	-26%	53%	-12%	5%
Annualised engine eq. (mn)	1.35	1.50	1.76	2.08	2.13	2.10	2.50	3.28	2.48	3.15	4.30	5.00
y-o-y	-4%	11%	18%	18%	2%	-1%	19%	31%	-24%	27%	37%	16%
Working capital / sales	24%	9%	18%	13%	16%	21%	24%	22%	25%	24%	24%	24%
Net debt/cash	-35	-48	-45	-48	-45	-30	-33	-30	-22	-23	-29	-26
ND/EBITDA	-17.7	-5.9	-4.1	-2.3	-1.7	-1.6	-1.0	-0.7	-0.9	-0.6	-0.5	-0.4
Equity ratio	94%	89%	91%	88%	89%	91%	90%	88%	85%	85%	85%	84%
FCF conversion (lease adj.)	8%	170%	44%	73%	82%	71%	68%	74%	107%	74%	71%	80%
ROCE	1%	9%	12%	22%	28%	19%	32%	38%	19%	29%	40%	43%
Payout ratio	-189%	104%	126%	97%	106%	105%	108%	51%	128%	100%	100%	100%
Source: ABG Sundal Collier estimates, company data

19 August 2021	ABG Sundal Collier	4
	Document downloaded by Linn FREDRIKSSON (SinterCast)

SinterCast

ESG profile

Risks and opportunities

SinterCast is a market-leading supplier of process control technology for production of CGI (Compacted Graphite Iron), a form of cast iron that is primarily used in the production of vehicle engines. The material offers higher tensile strength, stiffness and fatigue strength of grey iron and aluminium. This enables smaller-volume engines with higher efficiency (because the engines are lighter, the vehicles have lower emissions as less energy is required to transport them). The producer of the engine (the foundry) is also likely to reduce its production energy costs as the volumes of the engines are smaller, which lowers both electricity consumption and emissions. SinterCast's technologies also enable the foundry to test every batch of liquid iron to ensure that it has the right properties before the castings are produced. This enables savings in terms of energy, costs and the environment.

Company ESG activities

SinterCast has both a direct and an indirect impact on the environment. In the foundry, the improved efficiency of the SinterCast CGI technology reduces energy consumption, lowers CO2 emissions, and reduces the demand for raw materials. On the road, CGI enables the use of more efficient downsized engines, improving fuel economy and reducing CO2 emissions. Potential risks for SinterCast are the future for combustion engines and the timing of OEM decisions, in addition to emissions legislation, which is both a risk and an opportunity.

Social and governance data

	2018	2019	2020
Women in workforce %	15	18	19
Women in management %	0	0	0
Women in board %	19	15	15
CEO salary, SEKm p.a.	na	na	na
Employee turnover %	na	na	na
Employee absence %	na	na	na
Person responsible for sustainability:		Steve	Dawson
Senior management:			Yes

Key issues*	ABGSC weight
Environment	70%
Carbon emissions
Pollution and waste
Toxic emissions and waste
Social	20%
Product safety and quality
Chemical safety
Product liability
Governance	10%

Business ethics

Corporate behaviour

Corporate governance

Previous ESG incidents

None

Exposure to ESG Trends

Energy efficiency, Reduced fuel consumption

*based on the MSCI framework but not using all the parameters.

19 August 2021	ABG Sundal Collier	5
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