SinterCast : ABG Review 12 October 2021

Equity Research - 12 October 2021 11:33 CET

SinterCast

Stable volumes despite turbulent market

• Q3 report due on Wednesday, 3 November
• Revisions to series production and installation revenues
• Trading at 17x '22e EV/EBIT, 4-8% div. yield '21e-'23e

Q3: engine equivalents consistently at 3 million or more

We expect Q3 sales of SEK 27m, up 39% y-o-y (41% org, -2% FX). According to a company press release, annualised engine equivalents were 3.2m (2.8m in Q3'20, 3.2m in Q2'21) which is impressive considering the current production stops across the automotive industry due to component shortages. Moreover, the negative FX effects seen in H1'21 should be less of a factor in Q3 due to the recent appreciation of the USD/SEK rate. We expect sampling cup volumes to increase 40% y-o-y versus abnormally low levels in Q3'20. However, sampling cup volumes should decrease sequentially, as we saw a spike in Q2'21, meaning that customers' inventories are likely stocked up. The now-stable annualised engine equivalent volumes (seven straight months at 3 million or above) indicate that most of the uncertainties of the previous 18 months are behind us. Due to SinterCast's highly scalable business model, we expect topline growth to have a significant drop-through to EBIT, leading to EBIT of SEK 7m and a margin of 27% (19%).

Slight revisions to series production and installations

Although the Q3 engine equivalent volumes signal a positive development, they are slightly below what we had expected, which combined with somewhat lowered gross margin estimates leads us to lower our '21 EBIT estimates by 14% (SEK -5m). We also move some installation revenues from H2'21e into '22e, which raises '22e EBIT by 3% (SEK 2m).

Trading at 17x '22e EV/EBIT, 4-8% div. yield '21e-'23e

On our estimates the share is currently trading at 17x '22e EV/EBIT, offering 4-8% dividend yields for '21e-'23e. Meanwhile, we see SinterCast generating a 46% '20-'23e EBIT CAGR thanks to the inherent scalability of its licensing and production fee model, with the EBIT margin going from 23% in '20 to 41% in '23e. Finally, due to our estimate revisions, we lower our fair value range slightly to SEK 130-236 (132- 240) per share.

Analyst(s): [e-mail], [phone]

[e-mail], [phone]
SEKm	2019	2020	2021e	2022e	2023e
Sales	117	95	107	147	163
EBITDA	43	25	34	61	71
EBITDA margin (%)	37.2	26.6	31.7	41.3	43.7
EBIT adj	45	21	30	57	67
EBIT adj margin (%)	38.6	22.1	28.1	38.5	41.2
Pretax profit	40	22	29	57	67
EPS rep	6.80	3.12	4.92	9.31	10.79
EPS adj	7.49	3.04	4.92	9.31	10.79
Sales growth (%)	32.8	-18.1	12.5	37.3	10.9
EPS growth (%)	47.4	-54.0	57.3	89.4	15.9

Source: ABG Sundal Collier, Company data

Reason: Preview of results

Company sponsored research

Not rated

Estimate changes (%)
	2021e	2022e	2023e
Sales	-4.0%	1.4%	0.0%
EBIT (rep)	-13.5%	2.7%	0.0%
EPS (rep)	-11.9%	2.4%	0.0%

Source: ABG Sundal Collier
Share price (SEK)	12/10/2021	141.8
Fair value range (per share)	130-236
Capital Goods, Sweden
SINT.ST/SINT SS
MCap (SEKm)		1,005
MCap (EURm)		99
Net debt (EURm)		-3
No. of shares (m)		7.1
Free float (%)		99
Av. daily volume (k)		11

Next event

Q3 report: 03 Nov

Performance

220

200

180

160

140

120

100

80

60

Dec 18

Jun 19 Aug 19

Dec 19

Aug 20

Oct 20 Dec 20 Feb 21

Jun 21 Aug 21 Oct 21

Oct 18

Feb 19

Apr 19

Oct 19

Feb 20

Apr 20

Jun 20

Apr 21

SinterCast

OMX STH PI

	1m	3m	12m
Absolute (%)	-2.7	-8.5	-5.7
Source: FactSet
	2021e	2022e	2023e
P/E (x)	28.8	15.2	13.1
P/E adj (x)	28.8	15.2	13.1
P/BVPS (x)	8.72	6.86	6.41
EV/EBITDA (x)	28.8	15.9	13.6
EV/EBIT adj (x)	32.5	17.1	14.5
EV/sales (x)	9.13	6.58	5.96
ROE adj (%)	31.1	50.4	50.4
Dividend yield (%)	3.5	6.6	7.6
FCF yield (%)	2.7	4.7	6.2
Lease adj. FCF yld (%)	2.6	4.5	6.1
Net IB debt/EBITDA	-0.7	-0.6	-0.4
Lease adj. ND/EBITDA	-0.9	-0.7	-0.5

Please refer to important disclosures at the end of this report

This research product is commissioned and paid for by the company covered in this report. As such, this report is deemed to

constitute an acceptableDocumentminordownloadednon-monetarybybenefitLinn(iFREDRIKSSON.e. not investment research)(SinterCast)as defined in MiFID II.

SinterCast

Company description

SinterCast is a leading supplier of online process control technology and know-how for the reliable high-volume production of Compacted Graphite Iron (CGI). The material is stronger than traditional iron, which enables downsizing, increased thermal and mechanical loading, and increased engine performance. The technology is primarily used in diesel engines for larger passenger vehicles such as SUVs and pick-ups as well as commercial vehicles and offroad equipment.

Risks

Automotive demand, and more specifically demand for larger passenger vehicles such as SUVs and pick-up trucks with diesel engines. Regulation relating to fossil fuels and diesel in particular poses risks to the business model.

Annual sales and adj. EBIT margin

Quarterly sales and adj. EBIT margin

180								45.0	35
160								40.0	30
140								35.0
							25
120								30.0
100								25.0	20
80								20.0	15
60								15.0	10
40								10.0
							5
20								5.0
0								0.0	0
2015	2016	2017	2018	2019	2020	2021e	2022e	2023e
	Sales (LHS)			Adj EBIT margin % (RHS)

							40.0
							35.0
							30.0
							25.0
							20.0
							15.0
							10.0
							5.0
Q1'20	Q2'20	Q3'20	Q4'20	Q1'21	Q2'21		0.0
Q3'21e	Q4'21e
	Sales (LHS)			Adj EBIT margin % (RHS)

Source: ABG Sundal Collier, Company data

Source: ABG Sundal Collier, Company data

EPS estimate changes, 2021e, SEK

6.8
6.6
6.4
6.2
6.0
5.8
5.6
5.4
5.2
5.0
4.8
20		20		20		21		21		21			21		21		21		21		21		21		21
Oct	-	Nov	-	Dec	-		Jan	-	Feb	-	Mar	-	Apr	-	May	-	Jun	-	Jul	-	Aug	-	Sep	-	Oct	-
									ABGSC
Source: ABG Sundal Collier, FactSet

EPS estimate changes, 2022e, SEK

10.0
9.8
9.6
9.4
9.2
9.0
8.8
20		20		20		21		21		21			21		21		21		21		21		21			21
Oct	-	Nov	-	Dec	-		Jan	-	Feb	-	Mar	-	Apr	-	May	-	Jun	-	Jul	-	Aug	-	Sep	-	Oct	-
									ABGSC
Source: ABG Sundal Collier, FactSet

Lease adj. net debt and ND/EBITDA		12month forward-looking P/E
0									0.0	28.0
-10									-0.5	26.0
								-1.0
									24.0
-20									-1.5
-30									-2.0	22.0
								-2.5
									20.0
-40									-3.0
								18.0
									-3.5
-50
								-4.0	16.0
-60									-4.5	14.0
2014	2015	2016	2017	2018	2019	2020	2021e	2022e	2023e
Oct-16	Oct-17	Oct-18	Oct-19	Oct-20	Oct-21

		Net IB debt excl. leasing (LHS)		Net IB debt/EBITDA lease adj. (RHS)			P/E f12m		5y avg
Source: ABG Sundal Collier, Company data
Source: ABG Sundal Collier, Company data

12 October 2021

ABG Sundal Collier

2

Document downloaded by Linn FREDRIKSSON (SinterCast)

SinterCast

Estimate changes, '21e-'23e

Estimate changes	Old forecast	New forecast	SEKm change		% change
Income statement	2021e	2022e	2023e	2021e	2022e	2023e	2021e	2022e	2023e	2021e	2022e	2023e
Revenue	112	145	163	107	147	163	-5	2	0	-4%	1%	0%
Gross profit	81	110	124	77	112	124	-5	2	0	-6%	1%	0%
Opex	-46	-55	-57	-46	-55	-57	0	0	0	0%	0%	0%
EBIT	35	55	67	30	57	67	-5	2	0	-14%	3%	0%
PTP	33	55	67	29	57	67	-5	2	0	-14%	3%	0%
Net profit	40	64	77	35	66	77	-5	2	0	-12%	2%	0%
Growth and margins	2021e	2022e	2023e	2021e	2022e	2023e	2021e	2022e	2023e	2021e	2022e	2023e
Revenue grow th	17%	30%	12%	12%	37%	11%				-4.7pp	7.3pp	-1.5pp
EBIT grow th	61%	59%	22%	39%	88%	18%				-21.8pp	29.8pp	-3.3pp
Gross margin	73%	76%	76%	71%	76%	76%				-1.4pp	0.0pp	0.0pp
EBIT margin	31%	38%	41%	28%	39%	41%				-3.1pp	0.5pp	0.0pp
Sales split	2021e	2022e	2023e	2021e	2022e	2023e	2021e	2022e	2023e	2021e	2022e	2023e
Equipment	8	12	12	6	14	12	-2.0	2.0	0	-24%	17%	0%
Series Production	101	130	148	99	130	148	-2	0	0	-2%	0%	0%
Engineering Service	2	3	4	2	3	4	0	0	0	-9%	0%	0%
Total revenue	112	145	163	107	147	163	-5	2	0	-4%	1%	0%
Other metrics	2021e	2022e	2023e	2021e	2022e	2023e	2021e	2022e	2023e	2021e	2022e	2023e
Sampling cups	215,765	189,960	199,500	207,765	189,960	199,500	-8,000	0	0	-4%	0%	0%
Annualised engine eq. (mn)	3.15	4.30	5.00	3.10	4.30	5.00	-0.05	0.00	0.00	-2%	0%	0%

Source: ABG Sundal Collier estimates

12 October 2021	ABG Sundal Collier	3
	Document downloaded by Linn FREDRIKSSON (SinterCast)

SinterCast

Detailed quarterly financials

Quarterly overview	Q1'19	Q2'19	Q3'19	Q4'19	Q1'20	Q2'20	Q3'20	Q4'20	Q1'21	Q2'21	Q3'21e	Q4'21e
Revenue	22.9	33.5	30.8	29.3	24.6	18.7	19.2	32.9	24.3	28.2	26.7	28.1
Gross profit	18.4	25.4	24.6	20.6	17.6	12.9	14.6	23.3	17.1	19.7	19.2	20.5
SG&A	-7.8	-9.1	-8.4	-10.9	-8.9	-7.3	-7.5	-9.8	-8.7	-8.9	-9.0	-10.3
R&D	-2.2	-2.7	-3.0	-4.1	-3.3	-2.3	-3.2	-2.9	-2.6	-2.8	-2.8	-2.8
Other opex	0.5	-0.7	1.3	-1.8	2.5	-2.5	-0.3	-1.3	2.7	-0.8	-0.2	-0.2
EBIT	8.9	12.9	14.5	3.8	7.9	0.8	3.6	9.3	8.5	7.2	7.2	7.2
Net financials	-0.6	0.3	-0.3	0.4	-1.3	2.2	0.1	-0.3	-1.6	0.2	0.0	0.0
PTP	8.3	13.2	14.2	4.2	6.6	3.0	3.7	9.0	6.9	7.4	7.2	7.2
Taxes	0.0	0.9	0.0	7.4	0.0	0.0	0.0	-0.1	0.0	4.0	1.0	1.1
Net profit	8.3	14.1	14.2	11.6	6.6	3.0	3.7	8.9	6.9	11.4	8.2	8.3
Growth and margins	Q1'19	Q2'19	Q3'19	Q4'19	Q1'20	Q2'20	Q3'20	Q4'20	Q1'21	Q2'21	Q3'21e	Q4'21e
Revenue grow th	38%	25%	56%	19%	7%	-44%	-38%	12%	-1%	51%	39%	-14%
Organic	37%	25%	56%	19%	3%	-46%	-32%	20%	8%	60%	41%	-15%
FX	1%	0%	0%	0%	4%	2%	-5%	-7%	-10%	-9%	-2%	1%
EBIT grow th	82%	17%	142%	-49%	-11%	-94%	-75%	145%	8%	800%	100%	-22%
Gross margin	80%	76%	80%	70%	72%	69%	76%	71%	70%	70%	72%	73%
EBIT margin	39%	39%	47%	13%	32%	4%	19%	28%	35%	26%	27%	26%
Sales split	Q1'19	Q2'19	Q3'19	Q4'19	Q1'20	Q2'20	Q3'20	Q4'20	Q1'21	Q2'21	Q3'21e	Q4'21e
Equipment	0.5	6.6	2.4	2.4	0.4	6.1	0.3	9.8	1.5	0.2	1.5	3.0
Series Production	22.2	26.7	28.2	25.2	23.8	12.5	18.8	21.9	22.4	27.8	24.8	24.0
Engineering Service	0.2	0.2	0.2	1.7	0.5	0.1	0.1	1.1	0.4	0.2	0.4	1.1
Total revenue	22.9	33.5	30.8	29.3	24.7	18.7	19.2	32.8	24.3	28.2	26.7	28.1
Other metrics	Q1'19	Q2'19	Q3'19	Q4'19	Q1'20	Q2'20	Q3'20	Q4'20	Q1'21	Q2'21	Q3'21e	Q4'21e
Sampling cups	36,800	49,400	55,700	47,900	45,100	19,800	32,900	42,800	44,600	73,600	46,065	43,500
y-o-y	13%	-28%	30%	-11%	23%	-60%	-41%	-11%	-1%	272%	40%	2%
Annualised engine eq. (mn)	3.10	3.40	3.50	3.10	2.90	1.60	2.80	2.60	2.90	3.20	3.20	3.10
y-o-y	24%	26%	52%	19%	-6%	-53%	-20%	-16%	0%	100%	14%	19%
Working capital / sales R12m	24%	29%	25%	22%	21%	18%	22%	25%
Net debt/cash	-36	-25	-41	-30	-39	-45	-42	-22
ND/EBITDA	-1.0	-0.7	-0.9	-0.7	-0.9	-1.4	-2.1	-0.9
Equity ratio	86%	88%	90%	88%	86%	85%	86%	85%
FCF conversion (lease adj.)	59%	65%	68%	74%	81%	110%	80%	106%
ROCE	33%	37%	42%	38%	34%	23%	13%	19%

Source: ABG Sundal Collier estimates, company data

12 October 2021	ABG Sundal Collier	4
	Document downloaded by Linn FREDRIKSSON (SinterCast)

SinterCast

Detailed annual financials

Annual overview	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021e	2022e	2023e
Revenue	45.9	51.9	54.5	72.4	75.4	65.6	87.7	116.5	95.4	107.3	147.4	163.4
Gross profit	32.2	37.3	40.8	55.4	58.8	50.6	68.9	89.0	68.4	76.6	112.0	124.2
SG&A	-26.2	-24.6	-24.7	-26.4	-25.0	-25.0	-28.8	-36.2	-33.5	-36.9	-38.8	-40.5
R&D	-5.5	-5.8	-6.5	-7.6	-7.9	-7.3	-10.3	-12.0	-11.6	-11.0	-15.4	-15.4
Other opex	0.5	0.4	0.6	-1.1	0.5	-0.6	-0.4	-0.7	-1.6	1.5	-1.0	-1.0
EBIT	1.0	7.3	10.2	20.3	26.4	17.7	29.4	40.1	21.7	30.2	56.8	67.3
Net financials	1.0	0.2	1.3	4.6	-0.6	0.0	0.0	-0.2	0.6	-1.4	0.0	0.0
PTP	2.0	7.5	11.5	24.9	25.8	17.7	29.4	39.9	22.3	28.8	56.8	67.3
Taxes	-5.7	0.6	0.9	0.8	1.0	0.9	3.3	8.3	-0.1	6.1	9.2	9.2
Net profit	-3.7	8.1	12.4	25.7	26.8	18.6	32.7	48.2	22.2	34.9	66.0	76.5
EPS	-0.5	1.2	1.7	3.6	3.8	2.6	4.6	6.8	3.1	4.9	9.3	10.8
DPS	1.0	1.2	2.2	3.5	4.0	2.8	5.0	3.5	4.0	4.9	9.3	10.8
Growth and margins	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021e	2022e	2023e
Revenue grow th	-6%	13%	5%	33%	4%	-13%	34%	33%	-18%	12%	37%	11%
EBIT grow th	-91%	630%	40%	99%	30%	-33%	66%	36%	-46%	39%	88%	18%
Gross margin	70%	72%	75%	77%	78%	77%	79%	76%	72%	71%	76%	76%
EBIT margin	2%	14%	19%	28%	35%	27%	34%	34%	23%	28%	39%	41%
Sales split	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021e	2022e	2023e
Equipment	9.0	10.1	4.9	7.7	7.1	3.7	4.6	11.9	16.6	6.2	14.0	12.0
Series Production	35.8	44.1	47.8	63.6	66.4	60.7	81.3	102.3	77.0	99.0	130.0	147.9
Engineering Service	1.0	1.5	1.8	1.1	1.8	1.2	1.8	2.3	1.8	2.1	3.4	3.5
Total revenue	45.8	55.7	54.5	72.4	75.3	65.6	87.7	116.5	95.4	107.3	147.4	163.4
Other metrics	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021e	2022e	2023e
Sampling cups	102,400	118,500	133,000	153,000	168,800	144,600	197,900	189,800	140,600	207,765	189,960	199,500
y-o-y	-26%	16%	12%	15%	10%	-14%	37%	-4%	-26%	48%	-9%	5%
Annualised engine eq. (mn)	1.35	1.50	1.76	2.08	2.13	2.10	2.50	3.28	2.48	3.10	4.30	5.00
y-o-y	-4%	11%	18%	18%	2%	-1%	19%	31%	-24%	25%	39%	16%
Working capital / sales	24%	9%	18%	13%	16%	21%	24%	22%	25%	24%	24%	24%
Net debt/cash	-35	-48	-45	-48	-45	-30	-33	-30	-22	-20	-30	-26
ND/EBITDA	-17.7	-5.9	-4.1	-2.3	-1.7	-1.7	-1.0	-0.7	-0.9	-0.6	-0.5	-0.4
Equity ratio	94%	89%	91%	88%	89%	91%	90%	88%	85%	85%	84%	84%
FCF conversion (lease adj.)	8%	170%	44%	73%	82%	71%	68%	74%	107%	75%	69%	80%
ROCE	1%	9%	12%	22%	28%	19%	32%	38%	19%	26%	42%	43%
Payout ratio	-189%	104%	126%	97%	106%	105%	108%	51%	128%	100%	100%	100%

Source: ABG Sundal Collier estimates, company data

12 October 2021	ABG Sundal Collier	5
	Document downloaded by Linn FREDRIKSSON (SinterCast)