Margin expansion expected to drive shareholder value

Revenue is expected to increase through higher production volume and new customers. Revenue is expected to increase from 1 399,7 MSEK 2017 to 2008,9 MSEK 2020E, a 43,5 % increase which equals a CAGR of 12,8 %. A significant portion of the increase is due to the acquisition of Wermland Mechanics “Wermech” (EV/EBIT 7,0x)  in 2018 and the company is estimated to generate 349 MSEK in revenue 2018, which equates to a CAGR of 13,0 % for Wermech since 2016. Furthermore, the increase in revenue derives from orders from at least one new customer per year, amounting to 21 MSEK per new customer each year in our estimates. There is also expected to be an increase in production volume from existing customers. Between 2018E and 2020E the CAGR is estimated to be 3,7 %.

Measures to increase efficiency and profitability will most likely lead to improved margins in the coming years. After going through a startup phase (2009-2013) and then locating factories into manufacturing clusters (2014-2017) Hanza is now entering a third stage where focus will be on expansion and profitability. Increased production efficiency and costs cuttings is expected to improve the EBIT-margin from 2,6 % 2017 to 5,8 % in 2020E. Wermech is also expected to contribute to the improved margins due to the company’s higher profitability. Wermech’s EBIT margin was 7,5 % compared to Hanza’s 2,6 % in 2017. The motive of the acquisition was to expand the operations with new manufacturing technology and gain new customers.

DCF- and peer valuation indicates a value per share of 22,1 SEK, corresponding to a present value upside of 28,9 %. The valuation has been carried out using both a DCF model combined with a peer valuation, considering EV/EBIT in relation to peers. The DCF with a WACC of 10,4 % has been done using both exit multiples and perpetual growth of 2 %. The exit multiples consist of an average of peer’s EV/EBIT, EV/EBITDA, EV/S and P/E, calculated on the estimates of 2022E. The DCF by itself indicates a share price of 21,5 SEK, corresponding to a 26,8 % upside. Multiple valuation in relation to peers motivates a price per share of 22,3 SEK, indicating a upside of 31,1 %.

Analysts: Ferdinand Carsjö and Petrus Lindh