Aspo - CMD notes
Handysize specs still open, but the market looks attractive
ESL plans to invest more than EUR 150m in a handful of new Handysize vessels, which would add a lot to capacity yet should easily achieve high utilization assuming the addressable market around the Bothnian Bay roughly doubles (many large industrial investments have already been confirmed in Northern Sweden and at least some will also take place in Finland) while competing fleet capacity within the relevant ice-classed segments could decline by 20% due to ageing. The exact investment specifications are still open, but ESL has in the past decade averaged 12-13% ROCE while it has further diversified its portfolio and recently sold the two Supramax vessels. The 12 green coasters will by themselves add EUR 15m in EBITDA potential in the coming years.
Telko targets 10% M&A CAGR, plus another 4-5% organic
Telko’s margins have varied due to recent years’ inflationary and deflationary periods as well as the exit from Russia, yet ROCE remained in the double-digits even when EBITA margin declined some 300bps below the target. The market now lets earnings improve on an organic basis (assuming stable prices), in addition to which the two latest acquisitions will add EUR 7m in earnings; Telko is unlikely to grow 30% through M&A every year, but it could still repeat the respective 6x and 8-10x EV/EBIT multiples in the future as there remain opportunities to acquire smaller players thanks to e.g. succession issues and tighter regulation. Two-thirds of the EUR 350-400m investments are to be financed by OCF, which still leaves more than EUR 100m to be filled through debt (equity may also be used as seen in the recent ESL minority stake and Telko’s potential M&A earn-out cases, plus vessel pooling).
Multiples low in the light of ESL’s EUR 300m EV valuation
Aspo’s segments are not particularly complex, however all three have seen varying earnings levels in recent years and have also undertaken various value-creation measures. Recent comparison figures have thus been muddled, but in our view all the segments should improve going forward. Aspo is valued some 10x EV/EBIT on our FY ’24 estimates, and we continue to expect EUR 12-13m EBIT gain for next year. We retain our EUR 7.0 TP and BUY rating.