SinterCast : ABG Review 23 January 2023

Equity Research - 22 January 2023 18:31 CET

SinterCast

Solid '23e-'24e growth prospects, but lower FX

• Strong USD should keep supporting Q4 results...
• ...but slight recent decline reduces expectations for '23e-'24e
• Fair value of SEK 100-175(110-200),5-8%'23e-'24e div. yields

Q4e margins up y-o-y, but down from Q3 on seasonal effects

For Q4, we expect engine equivalents to come in at 3.5m, down from

3.6m in Q3, as Q4 is usually slower than Q3; however, considering the Q3 shutdowns, which should now be solved, we do not expect the difference to be substantial. We estimate this will translate into SEK 32.6m in revenue, up 10% y-o-y, mostly due to the continued strength of the USD in Q4, as the unusually high equipment sales in Q4'21 provide tough comps for organic growth. We expect a slight sequential gross margin decline, to 74%, down from 78%, as Q4 tends to perform below Q3 in this regard; however, the strong USD will likely result in an increase from Q4'21's 69%. On the EBIT margin and net earnings levels, we expect margins of 33% (26%) and 27% (24%). Finally, we estimate a '22e dividend per share of SEK 5.00 (104% of '22e EPS) to be announced in the Q4 report.

Somewhat lowered FX and volume estimates

We decrease '23e and '24e sales by 9% and 7% respectively, partly due to somewhat more conservative expectations on series production volumes, but also the slightly weaker USD compared to Q3. The unfavourable mix- effect resulting from lower series production revenue expectations in turn affects the EBIT margin negatively.

Double-digit earnings growth to continue into '23e-'24e

We continue to believe that SinterCast will see double-digit revenue growth, helped by the order backlog in the automotive industry and customer ramp-ups, while also expanding its margin and rewarding shareholders by distributing all EPS as dividends. However, following our slightly more conservative estimates, we tighten our fair value range for the company to SEK 100-175(110-200) per share. On our current estimates, the share is trading at 16x '23e EV/EBIT (adj.) with an expected dividend yield of 5-8% for '22e-'24e.

Reason: Preview of results

Commissioned Research

Not rated

Capital Goods

Estimate changes (%)

	2022e	2023e	2024e
Sales	-0.8	-9.1	-6.8
EBIT	0.0	-18.2	-13.0
EPS	-1.0	-17.9	-12.5
Source: ABG Sundal Collier
Share price (SEK)	22/1/2023	111.2
Fair value range			100-175
MCap (SEKm)			788
MCap (EURm)			71
No. of shares (m)			7.1
Free float (%)			72.0
Av. daily volume (k)			8

Next event	Q4 Report 8 February 2023
Performance
160.00
150.00
140.00
130.00
120.00
110.00
100.00
90.00

Mar-22May-22	Jul-22Sep-22Nov-22Jan-23
	SinterCast		OMX Stockholm All Share Index

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

SEKm	2020	2021	2022e	2023e	2024e		2022e	2023e	2024e
Sales	95	107	118	145	168		P/E (x)	23.1	15.9	12.4
EBITDA	25	35	41	53	65		P/E adj. (x)	20.0	15.9	12.4
EBITDA margin (%)	26.6	32.8	34.7	36.5	38.7		P/BVPS (x)	7.05	6.25	5.78
EBIT adj.	21	31	42	49	61		EV/EBITDA (x)	19.1	14.6	11.9
EBIT adj. margin (%)	22.1	29.2	35.2	33.4	36.0		EV/EBIT adj. (x)	18.7	15.9	12.8
Pretax profit	22	29	31	46	60		EV/sales (x)	6.60	5.32	4.61
EPS	3.12	4.64	4.81	7.00	8.97		ROE adj. (%)	35.1	41.7	48.4
EPS adj.	3.04	4.64	5.57	7.00	8.97		Dividend yield (%)	4.5	6.7	8.1
Sales growth (%)	-18.1	12.6	10.3	22.8	15.8		FCF yield (%)	2.0	5.7	6.7
EPS growth (%)	-54.0	48.5	3.7	45.4	28.1		Le. adj. FCF yld. (%)	1.8	5.5	6.5
							Net IB debt/EBITDA (x)	-0.2	-0.3	-0.2
Source: ABG Sundal Collier, Company Data						Le. adj. ND/EBITDA (x)	-0.2	-0.3	-0.2

Disclosures and analyst certifications are located on pages 9-10 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 acceptable minor non-monetary benefit (i.e. not investment research) 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 pickups 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.

Annualised engine eqs and sampling cups…

…correlate well with sales and EBIT margin

Source: ABG Sundal Collier estimates, company data

Source: ABG Sundal Collier estimates, company data

>100% EBIT to net profit conversion…

…and ~100% of net profit paid out in dividends

Source: ABG Sundal Collier estimates, company data	Source: ABG Sundal Collier estimates, company data

22 January 2023

ABG Sundal Collier

2

SinterCast

Estimate changes

Source: ABG Sundal Collier estimates, company data

22 January 2023

ABG Sundal Collier

3

SinterCast

Key figures, quarterly

Source: ABG Sundal Collier estimates, company data

22 January 2023

ABG Sundal Collier

4

SinterCast

Key figures, annual

Source: ABG Sundal Collier estimates, company data

22 January 2023

ABG Sundal Collier

5