NYAB Q3'24 preview: Growth picture for the coming years strengthened

Translation: Original published in Finnish on 11/3/2024 at 10:15 pm EET.

NYAB will publish its Q3 report on Wednesday. We expect the company's revenue to have increased sharply year-over-year, which we expect to have also boosted earnings development. At the same time, the company has announced several contracts during the summer and fall that reinforce our growth outlook for the coming years. We have made no changes to our forecasts in this update, so we reiterate our target price of SEK 6.8, but in view of the fall in the exchange rate we raise our recommendation to Accumulate (was Reduce).

Our estimates see revenue and earnings rising year-on-year

We expect NYAB's growth to have continued at a high pace in Q3, with revenue amounting to 104 MEUR. We estimate that the growth was especially supported by the order book, which reached a record level in Q2'24 (343 MEUR vs. Q2’23: 252 MEUR). Accordingly, we expect the company's reported EBIT to land at 10.1 MEUR, corresponding to an EBIT margin of 9.7%. Thus, we expect both absolute and relative profitability to have increased year-on-year as a result of the revenue growth and the easing of the worst inflationary pressures, which still partially eroded the company's development in the comparison period. On the bottom lines, we expect losses from associates to be at the same level as in Q2, while financial expenses should have fallen closer to normal levels following the completion of the re-domiciliation process at the end of the previous quarter. Based on this overall picture and our expectation of a depressed tax rate through consolidated losses, we expect the reported net result to have settled at 8.1 MEUR.

We expect a stronger order book as a result of our development projections and announced orders

For the current year, NYAB has guided for an increase in both revenue (2023: 280 MEUR) and EBIT (2023: 15.2 MEUR) compared to last year, and we do not expect the company to make any changes to this in connection with the report (to our understanding, this is also the highest level of the current guidance policy). The company has maintained a good order flow throughout the summer and fall and has been successful in announcing further projects. The most significant of these was an order of approximately 80 MEUR for the construction of power lines. However, in view of other smaller orders announced and the underlying demand, we expect the company's order book to be well on track to reach another record level by the end of Q3. In addition, the company recently announced that it has been selected for the first phase of the Uppsala Tramway project through a joint venture. As a result, we consider it likely that the company will also be selected for the sizeable second phase, which would further strengthen the growth picture for the next few years. Overall, the market situation for the company seems to be quite positive, especially in its larger market area.

Expected return raised to an attractive level

Based on our estimates, adjusted P/E figures for 2024 and 2025 are 19x and 16x, while the corresponding EV/EBIT ratios are 14x and 11x. Relative to the accepted valuation range (P/E: 13x-17x, EV/EBIT: 12x-16x), we believe the valuation is relatively neutral overall for this year. Similarly, looking ahead to next year, we see upside, particularly in the EV/EBIT ratio reflecting the solid balance sheet, underpinned by the strengthened earnings growth outlook. Our range of expected total returns over the medium term is also slightly above our required return for the stock due to the decline in the exchange rate. Further support for a positive recommendation comes from our sum-of-the-parts model, which remains unchanged at SEK 6.2-7.5. We therefore see the share price decline as an opportunity to jump on board a company with a strong historical track record of profitable growth.