Publicerat: 2020-05-15 08:00:23

Eurocon: Lower COVID-19 impact than feared - Introduce

Q1: Profitability trend has turned positive
Eurocon reported net sales of SEK 67.9m (74.4), corresponding to a y-o-y decline of 9%. The year started off slowly, and the company experienced some project delays in the end of March on the back of COVID-19. However, net sales were 4% better than ABGSCe as we anticipated a larger disturbance from COVID-19. EBIT was SEK 3.1m (4.7m) vs. our forecast of SEK 1.5m. The positive deviation stems from higher sales volume and improved utilisation following a disappointing end to 2019. Looking into Q2, management is confident about the current order backlog where new projects were signed in the latter part of Q1. Eurocon will utilise short-term layoffs to a small extent in Q2, and stated that the visibility going into H2 is lower than normal. All in all, we were positively surprised by the relatively low COVID-19 impact that has been experienced so far.

Raising estimates on lower than expected COVID-19 impact
In our preview to the Q1 result, we pencilled in a bigger COVID-19 impact than what seems to be the case for Eurocon. We now make large positive revisions to our estimates following the surprisingly positive outlook in the Q1 report. For 2020, we think Eurocon can deliver an EBIT margin of ~4%, up from 0% in our previous forecast. It will also have a positive effect on the ability to recover the margin in the following years, and we raise our margin assumptions for ’21e-’22e, resulting in positive EBIT revisions of 27% and 21%, respectively.

More improvements needed to reach margin target
The share has taken a hit from the COVID-19 uncertainty and now is trading at 8.7x EV/EBIT for ’21e, with a dividend yield of 6.3%. Our anticipated EBIT margin of 6.5% for ’21e is still some way below the margin target of 10% as we are a bit unsure about the margin following the weak end to 2019. Looking at peer valuation, Eurocon is trading ~40% below its more well-known Swedish peers on EV/EBIT for ’21e.


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