* Medical growth shines; positive margin trajectory ahead
* EBITA lowered by 1-% for '26e-'28e, driven by Engineered
* Share trading at 12x '27e EV/EBITA (5Y average 15x)
Medical growth accelerating, held back by Engineered
Nolato delivered a decent Q3 report overall. The organic acceleration we had anticipated was hampered by automotive customers within Engineered, leading to 3% organic growth for the group (ABGSCe +6%). However, Medical came in at 9% organic growth (ABGSCe +7%), showing that sales are starting to ramp up in the new facility in Hungary. Adj. EBITA was 3% below MFN consensus, but we believe the margin trajectory will be positive in the coming quarters due to: 1) price hikes compensating for higher raw material costs starting in Q4e (raw material headwinds impacted Q3 EBITA by SEK -10m, or 0.4pp on the EBITA margin), and 2) gradually improving utilisation in the new Medical facility.
EBITA lowered by 1-2% on lower Engineered growth
For Engineered, management indicated during the earnings call that the issues related to the automotive business are likely not isolated to Q3. As such, we lower our growth assumptions for the segment while leaving our estimates for Medical largely unchanged. All in all, this results in EBITA cuts of 1% for '26e, followed by 2% per year for '27e-'28e.
Trading at 12x '27e EV/EBITA vs. 5Y average 15x
Although Engineered is seeing some growth issues, we believe that Medical will drive high single-digit organic growth rates at the group level during '27e-'28e as the aforementioned new facility ramps up. Meanwhile, Nolato has re-initiated its M&A agenda with two acquisitions closed during Q3, and at 1.0x ND/EBITDA, the balance sheet leaves plenty of room for more. The share is trading at 12x '27e EV/EBITA, which can be contrasted with its five-year average of 15x, and it offers lease adj. FCF yields of 3-6%.