NYAB Q2'24: Market in Sweden continues to strengthen

This report is a summary translation of the report “Ruotsissa markkina jatkanut vahvistumistaan” published on 8/15/2024 at 7:40 am EEST.

NYAB's Q2 report was operationally in line with our expectations. In addition, the market situation in Sweden has continued to strengthen, as reflected in the record order book. Looking at the report and the outlook, which was generally well in line with our expectations, the forecast changes were very small. Despite the company's strong performance and outlook, we see very limited near-term upside for the stock given the recent share price rise. Reflecting this, we lower our recommendation to Reduce (was Accumulate), but in line with small positive forecast revisions and the latest EUR/SEK exchange rate, we raise our target price to SEK 6.8 (was 6.2 SEK). 

Operational development in Q2 well in line with expectations, profitability clearly up year-on-year

In Q2, NYAB's revenue increased by more than 16% to 76.1 MEUR, slightly below our expectations. Geographically, the Finnish business declined by as much as 19%, reflecting a cooling of investments in renewable energy. Similarly, reported revenue in Sweden increased by a whopping 37%. Reported EBIT was 3.8 MEUR and exceeded our expectations moderately, reflecting the margin development. At the same time, profitability increased significantly year-on-year, taking into account the compensation payment of 3.3 MEUR received in Q2'23. The bottom lines, on net, were quite clearly above our expectations, reflecting the re-domiciliation and the Swedish listing. Given this, net profit fell short of our forecasts, contrary to the operating result.

Guidance reiterated, only minor adjustments to forecasts

The company reiterated its guidance for the current year and expects its revenue (2023: MEUR 280) and EBIT (2023: 15.2 MEUR) to grow from last year. We understand that this is the highest level of the company's current guidance policy (i.e., it excludes the possibility of raising guidance). On the other hand, the company noted that the outlook in Sweden has strengthened further, while the outlook in Finland remains weak. However, the company's order book reached a record level at the end of Q2, reflecting strong demand from Sweden. In view of the report, which was well in line with our expectations, and the outlook, the forecast changes were relatively minor and we expect the company’s revenue to grow to 344 MEUR this year (was 345 MEUR) and the reported EBIT to amount to 24.0 MEUR (was 23.7 MEUR). Estimate changes for the next few years are also minor at this time. Looking at the bigger picture, we expect NYAB to continue to grow at double-digit rates in the coming years. Similarly, we expect the margin to increase close to the target level (25e-26e EBIT%  7.2-7.3% vs. target above 7.5%), driven among others by revenue growth and measures to smooth out seasonality.

Strong performance, but also reflected in the share price

Based on our updated estimates, adjusted P/E figures for 2024 and 2025 are 21x and 18x, while the corresponding EV/EBIT ratios are 16x and 13x. Relative to the accepted valuation range (P/E: 13x-17x, EV/EBIT: 12x-16x), we believe the valuation is elevated for this year. Similarly, looking ahead to next year, we see the multiples falling to neutral levels overall, although the upside is still quite limited. The rise in the share price also means that the medium-term total expected return for our range is, on average, below our required return. Our view of limited upside is also supported by our sum-of-the-parts model, which is now at SEK 6.2-7.5 per share. Currently, we believe the stock is fairly priced for the favorable growth outlook, which makes the expected risk-adjusted return over the next 12 months too low.