Equity Research - 13 April 2021 09:25 CET

SinterCast

Series production showing signs of recovery

  • Q1'21 report due on Wednesday 21 April
  • EBIT up 1.5% for '21e, impact from series production
  • Trading at ~29x '21e EV/EBIT, 4-7% div. yield '21-'23e

Positive Q1'21 outlook driven by March production volumes

We expect Q1 sales of ~SEK 25m (0% y-o-y), of which ~SEK 23m should come from series production (-5%y-o-y) and SEK 1.2m (vs. SEK 0.4m in Q1'20) from equipment sales and note that Q1 is a historically weak quarter for this segment. We estimate EBIT of SEK 7.5m, corresponding to a 30% EBIT margin (vs. 32% Q1'20). However, following a company announcement of Q1 production volumes, we revise our estimate for Q1'21 series production to 2.90m from 2.85m annualised engine equivalents (0% y-o-y, +12% q-o-q). After lower volumes in January and February (2.7m and 2.5m, respectively), March series production recovered to pre-COVID-19 levels at 3.5m annualised engine equivalents. Finally, we estimate sampling cup deliveries of 40,780 (-10%y-o-y,-5%q-o-q) due to seasonal foundry shutdowns and harsher winter conditions compared to Q1'20.

'21e series production recovery, but lower equipment sales

We raise our sales estimates by c. 1% for '21 and EBIT estimates by 1.5% due to slight revisions in series production. We expect growth in '21e to be driven by the recovery of series production sales, which we estimate will increase by c. 28% y-o-y. However, '20 saw record equipment sales due to major installations in the First Automobile Works (FAW) and Scania foundries. Based on this, we expect growth from series production to be offset by a 25% y-o-y decrease in equipment sales. In addition, equipment sales in '21 will likely be concentrated in H2, as the Impro Industries and Hyundai orders are both scheduled for H2. All in all, we leave our estimates for '22-'23e unchanged.

Trading at ~29x EV/EBIT '21e, 4-7% div. yield '21-'23e

On our estimates, SinterCast is trading at ~29x EV/EBIT '21e, while offering a 4-7% dividend yield for '21-'23e. As the company has a history of paying out 100% of net profit as dividends, we derive our fair value range of SEK 130-241(125-225) per share by discounting future dividends, assuming an 8-12% cost of equity.

Analyst(s): ofelia.aspemyr@abgsc.se, +46 8 566 286 31

Adrian.Gilani@abgsc.se,

SEKm

2019

2020

2021e

2022e

2023e

Sales

117

95

114

148

168

EBITDA

43

25

42

61

75

EBITDA margin (%)

37.2

26.6

36.4

41.4

44.5

EBIT adj

45

21

38

57

70

EBIT adj margin (%)

38.6

22.1

32.9

38.7

42.1

Pretax profit

40

22

38

57

70

EPS rep

6.80

3.12

5.85

9.38

11.24

EPS adj

7.49

3.04

5.85

9.38

11.24

Sales growth (%)

32.8

-18.1

19.6

29.8

13.1

EPS growth (%)

47.4

-54.0

87.4

60.2

19.8

Source: ABG Sundal Collier, Company data

Reason: Preview of results

Company sponsored research

Not rated

Estimate changes (%)

2021e

2022e

2023e

Sales

0.6%

0.0%

0.0%

EBIT (rep)

1.5%

0.0%

0.0%

EPS (rep)

1.3%

0.0%

0.0%

Source: ABG Sundal Collier

Share price (SEK)

12/04/2021

155.4

Fair value range (per share)

130-241

Capital Goods, Sweden

SINT.ST/SINT SS

MCap (SEKm)

1,102

MCap (EURm)

108

Net debt (EURm)

-3

No. of shares (m)

7.1

Free float (%)

88

Av. daily volume (k)

20

Next event

Q1 report: 21 Apr

Performance

220

200

180

160

140

120

100

80

60

Aug 18

Dec 18 Feb 19

Aug 19

Dec 19

Jun 20 Aug 20

Dec 20

Apr 18

Jun 18

Oct 18

Apr 19

Jun 19

Oct 19

Feb 20 Apr 20

Oct 20

Feb 21 Apr 21

SinterCast

OMX STH PI

1m

3m

12m

Absolute (%)

12.8

17.4

21.6

Source: FactSet

2021e

2022e

2023e

P/E (x)

26.6

16.6

13.8

P/E adj (x)

26.6

16.6

13.8

P/BVPS (x)

9.04

7.50

6.88

EV/EBITDA (x)

25.8

17.3

14.3

EV/EBIT adj (x)

28.5

18.6

15.1

EV/sales (x)

9.37

7.18

6.36

ROE adj (%)

36.0

49.5

51.9

Dividend yield (%)

3.8

6.0

7.2

FCF yield (%)

3.1

4.4

5.9

Lease adj. FCF yld (%)

3.0

4.3

5.8

Net IB debt/EBITDA

-0.8

-0.6

-0.5

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

Q1'21e

Q2'21e

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

9.0

8.5

8.0

7.5

7.0

6.5

6.0

5.5

20

20

20

20

20

20

20

20

20

21

21

21

Apr

-

May

-

Jun

-

Jul

-

Aug

-

Sep

-

Oct

-

Nov

-

Dec

-

Jan

-

Feb

-

Mar

-

ABGSC

FactSet Consensus Mean

Source: ABG Sundal Collier, FactSet

EPS estimate changes, 2022e, SEK

10.6

10.4

10.2

10.0

9.8

9.6

9.4

9.2

9.0

8.8

20

20

20

20

20

20

20

20

20

21

21

21

Apr

-

May

-

Jun

-

Jul

-

Aug

-

Sep

-

Oct

-

Nov

-

Dec

-

Jan

-

Feb

-

Mar

-

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

Apr-16

Apr-17

Apr-18

Apr-19

Apr-20

Apr-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

13 April 2021

ABG Sundal Collier

2

Document downloaded by Linn FREDRIKSSON (SinterCast)

SinterCast

Estimate changes, 2021e-2023e

Estimate changes

Old

New

SEKm

%

SEKm

2021e

2022e

2023e

2021e

2022e

2023e

2021e

2022e

2023e

2021e

2022e

2023e

Revenue

113.4

148.1

167.6

114.1

148.1

167.6

0.7

0.0

0.0

1%

0%

0%

Gross profit

85.1

112.6

127.4

85.6

112.6

127.4

0.6

0.0

0.0

1%

0%

0%

Opex

-48.1

-55.3

-56.9

-48.1

-55.3

-56.9

0.0

0.0

0.0

0%

0%

0%

EBIT

37.0

57.3

70.5

37.5

57.3

70.5

0.6

0.0

0.0

1%

0%

0%

PTP

37.0

57.3

70.5

37.5

57.3

70.5

0.6

0.0

0.0

1%

0%

0%

Net profit

40.9

66.5

79.7

41.5

66.5

79.7

0.6

0.0

0.0

1%

0%

0%

Growth and margins

2021e

2022e

2023e

2021e

2022e

2023e

2021e

2022e

2023e

2021e

2022e

2023e

Revenue grow th

19%

31%

13%

20%

30%

13%

1%

-1%

0%

EBIT grow th

71%

55%

23%

73%

53%

23%

3%

-2%

0%

Gross margin

75%

76%

76%

75%

76%

76%

0%

0%

0%

EBIT margin

33%

39%

42%

33%

39%

42%

0%

0%

0%

Sales split

2021e

2022e

2023e

2021e

2022e

2023e

2021e

2022e

2023e

2021e

2022e

2023e

Equipment

12.4

14.4

15.0

12.4

14.4

15.0

0.0

0.0

0.0

0%

0%

0%

Series Production

98.0

130.3

149.1

98.7

130.3

149.1

0.7

0.0

0.0

1%

0%

0%

Engineering Service

3.0

3.4

3.5

3.0

3.4

3.5

0.0

0.0

0.0

0%

0%

0%

Total revenue

113.4

148.1

167.6

114.1

148.1

167.6

0.7

0.0

0.0

1%

0%

0%

Other metrics

2021e

2022e

2023e

2021e

2022e

2023e

2021e

2022e

2023e

2021e

2022e

2023e

Sampling cups

164,410

189,960

204,500

167,410

189,960

204,500

3,000

0

0

2%

0%

0%

Annualised engine eq. (mn)

3.16

4.30

5.00

3.18

4.30

5.00

0.01

0.00

0.00

0%

0%

0%

Source: ABG Sundal Collier estimates

Valuation overview

Owing to the company's history of paying out 100% of EPS as dividends, we derive our fair value range using a two-stage dividend discount model. Assuming a 6% EPS CAGR for '24e-'33e, payout ratio of 100%, terminal growth of 2.5% and a cost of equity of 8-12%, we arrive at a fair value range of SEK 130-241 per share.

ABGSCe fair value range

Cost of equity

8%

9%

10%

11%

12%

NPV (Stage 1)

22

22

22

21

21

NPV (Stage 2)

81

75

69

64

60

NPV (Terminal)

138

104

80

62

50

Value per share

241

200

170

148

130

Source: ABG Sundal Collier estimates

Historical P/E and dividend yields

80

68

8%

70

7%

7%

60

6%

6%

6%

50

5%

44

5%

40

40

4%

4%

4%

29

4%

30

25

27

3%

3%

24

22

18

3%

17

20

14

2%

10

2%

2%

1%

0

0%

2013

2014

2015

2016

2017

2018

2019

2020

2021e

2022e

2023e

P/E

Dividend yield

Source: ABG Sundal Collier estimates, company data

13 April 2021

ABG Sundal Collier

3

Document downloaded by Linn FREDRIKSSON (SinterCast)

SinterCast

Detailed quarterly figures, Q1'19-Q4'21e

Quarterly overview

Q1'19

Q2'19

Q3'19

Q4'19

Q1'20

Q2'20

Q3'20

Q4'20

Q1'21e

Q2'21e

Q3'21e

Q4'21e

Revenue

22.9

33.5

30.8

29.3

24.6

18.7

19.2

32.9

24.6

29.1

30.3

30.2

Gross profit

18.4

25.4

24.6

20.6

17.6

12.9

14.6

23.3

18.5

21.8

22.7

22.6

SG&A

-7.8

-9.1

-8.4

-10.9

-8.9

-7.3

-7.5

-9.8

-7.8

-8.4

-8.4

-10.7

R&D

-2.2

-2.7

-3.0

-4.1

-3.3

-2.3

-3.2

-2.9

-3.0

-3.0

-3.0

-3.0

Other opex

0.5

-0.7

1.3

-1.8

2.5

-2.5

-0.3

-1.3

-0.2

-0.2

-0.2

-0.2

EBIT

8.9

12.9

14.5

3.8

7.9

0.8

3.6

9.3

7.5

10.2

11.1

8.7

Net financials

-0.6

0.3

-0.3

0.4

-1.3

2.2

0.1

-0.3

0.0

0.0

0.0

0.0

PTP

8.3

13.2

14.2

4.2

6.6

3.0

3.7

9.0

7.5

10.2

11.1

8.7

Taxes

0.0

0.9

0.0

7.4

0.0

0.0

0.0

-0.1

1.0

0.9

1.0

1.1

Net profit

8.3

14.1

14.2

11.6

6.6

3.0

3.7

8.9

8.4

11.2

12.1

9.8

Growth and margins

Q1'19

Q2'19

Q3'19

Q4'19

Q1'20

Q2'20

Q3'20

Q4'20

Q1'21e

Q2'21e

Q3'21e

Q4'21e

Revenue grow th

38%

25%

56%

19%

7%

-44%

-38%

12%

0%

56%

58%

-8%

EBIT grow th

82%

17%

142%

-49%

-11%

-94%

-75%

145%

-6%

1176%

208%

-6%

Gross margin

80%

76%

80%

70%

72%

69%

76%

71%

75%

75%

75%

75%

EBIT margin

39%

39%

47%

13%

32%

4%

19%

28%

30%

35%

37%

29%

Sales split

Q1'19

Q2'19

Q3'19

Q4'19

Q1'20

Q2'20

Q3'20

Q4'20

Q1'21e

Q2'21e

Q3'21e

Q4'21e

Equipment

0.5

6.6

2.4

2.4

0.4

6.1

0.3

9.8

1.2

3.3

3.8

4.1

Series Production

22.2

26.7

28.2

25.2

23.8

12.5

18.8

21.9

22.7

25.2

25.9

25.0

Engineering Service

0.2

0.2

0.2

1.7

0.5

0.1

0.1

1.1

0.7

0.6

0.6

1.1

Total revenue

22.9

33.5

30.8

29.3

24.7

18.7

19.2

32.8

24.6

29.1

30.3

30.2

Other metrics

Q1'19

Q2'19

Q3'19

Q4'19

Q1'20

Q2'20

Q3'20

Q4'20 Q1'21e Q2'21e Q3'21e Q4'21e

Sampling cups

36,800

49,400

55,700

47,900

45,100

19,800

32,900

42,800

40,780

41,065

41,065

44,500

y-o-y

13%

-28%

30%

-11%

23%

-60%

-41%

-11%

-10%

107%

25%

4%

Annualised engine eq. (mn)

3.10

3.40

3.50

3.10

2.90

1.60

2.80

2.60

2.90

3.30

3.40

3.10

y-o-y

24%

26%

52%

19%

-6%

-53%

-20%

-16%

0%

106%

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

13 April 2021

ABG Sundal Collier

4

Document downloaded by Linn FREDRIKSSON (SinterCast)

SinterCast

Detailed annual figures, '12-'23e

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

114.1

148.1

167.6

Gross profit

32.2

37.3

40.8

55.4

58.8

50.6

68.9

89.0

68.4

85.6

112.6

127.4

SG&A

-26.2

-24.6

-24.7

-26.4

-25.0

-25.0

-28.8

-36.2

-33.5

-35.3

-38.9

-40.5

R&D

-5.5

-5.8

-6.5

-7.6

-7.9

-7.3

-10.3

-12.0

-11.6

-12.0

-15.4

-15.4

Other opex

0.5

0.4

0.6

-1.1

0.5

-0.6

-0.4

-0.7

-1.6

-0.8

-1.0

-1.0

EBIT

1.0

7.3

10.2

20.3

26.4

17.7

29.4

40.1

21.7

37.5

57.3

70.5

Net financials

1.0

0.2

1.3

4.6

-0.6

0.0

0.0

-0.2

0.6

0.0

0.0

0.0

PTP

2.0

7.5

11.5

24.9

25.8

17.7

29.4

39.9

22.3

37.5

57.3

70.5

Taxes

-5.7

0.6

0.9

0.8

1.0

0.9

3.3

8.3

-0.1

4.0

9.2

9.2

Net profit

-3.7

8.1

12.4

25.7

26.8

18.6

32.7

48.2

22.2

41.5

66.5

79.7

EPS

-0.5

1.2

1.7

3.6

3.8

2.6

4.6

6.8

3.1

5.9

9.4

11.2

DPS

1.0

1.2

2.2

3.5

4.0

2.8

5.0

3.5

4.0

5.9

9.4

11.2

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%

20%

30%

13%

EBIT grow th

-91%

630%

40%

99%

30%

-33%

66%

36%

-46%

73%

53%

23%

Gross margin

70%

72%

75%

77%

78%

77%

79%

76%

72%

75%

76%

76%

EBIT margin

2%

14%

19%

28%

35%

27%

34%

34%

23%

33%

39%

42%

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

12.4

14.4

15.0

Series Production

35.8

44.1

47.8

63.6

66.4

60.7

81.3

102.3

77.0

98.7

130.3

149.1

Engineering Service

1.0

1.5

1.8

1.1

1.8

1.2

1.8

2.3

1.8

3.0

3.4

3.5

Total revenue

45.8

55.7

54.5

72.4

75.3

65.6

87.7

116.5

95.4

114.1

148.1

167.6

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

167,410

189,960

204,500

y-o-y

-26%

16%

12%

15%

10%

-14%

37%

-4%

-26%

19%

13%

8%

Annualised engine eq. (mn)

1.35

1.50

1.76

2.08

2.13

2.10

2.50

3.28

2.48

3.18

4.30

5.00

y-o-y

-4%

11%

18%

18%

2%

-1%

19%

31%

-24%

28%

35%

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

-27

-33

-30

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%

84%

84%

FCF conversion (lease adj.)

8%

170%

44%

73%

82%

71%

68%

74%

107%

80%

71%

80%

ROCE

1%

9%

12%

22%

28%

19%

32%

38%

19%

31%

41%

45%

Payout ratio

-189%

104%

126%

97%

106%

105%

108%

51%

128%

100%

100%

100%

Source: ABG Sundal Collier estimates, company data

13 April 2021

ABG Sundal Collier

5

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