Aspo - Improving in stabilizing markets
ESL continues to recover, but Q4 EBIT will remain moderate
Aspo’s EUR 130m Q3 revenue came in vs the EUR 142m/137m Evli/cons estimates, but the EUR 7.4m adj. EBIT was higher than the EUR 6.6m/6.0m Evli/cons estimates as Telko’s EUR 3.1m EBIT beat our estimate by EUR 1m. EBIT gained EUR 2.2m q/q as prices stabilized after a weak Q2. Plastics especially drove improvement, and its performance should continue to trend up despite still challenging market conditions. ESL’s EBIT already gained a bit q/q from the lows; in our view the guidance midpoint suggests ESL’s Q4 EBIT will remain low relative to its potential as the last quarter is the strongest. We estimate ESL’s Q4’23 EBIT only at EUR 6.7m vs the EUR 10m levels seen in the two previous years.
ESL’s long-term sustained EBIT rate should be ca. EUR 30m
Supramaxes have hit earnings and volumes have been lower also for smaller vessels following the very high demand levels of previous years. Forest and steel industry volumes have been soft but are stabilizing, however ESL’s earnings recovery pace remains the most significant source of short-term uncertainty. The current market will not let ESL reach EUR 38m EBIT again anytime soon even when the company receives its green coasters, which are to support growth soon. We estimate ESL’s FY ’23 EBIT at EUR 20m, from which we see a gain of EUR 5m next year. Telko has implemented cost measures (a run-rate of EUR 1.5m); we estimate some 6% Telko EBIT margins going forward, on which there should be further long-term upside. We estimate 4% margins for Leipurin, in line with the Q3 result, which also remains short of long-term potential. We make only small group-level estimate revisions and see FY ’24 EBIT at EUR 37.4m.
Next year’s improvement still leaves room for further gains
We estimate EBIT to have bottomed out as ESL has plenty of room to gain next year even if the market stays a bit cool, whereas Telko and Leipurin should be able to keep their respective 6% and 4% EBIT margins. Aspo is valued some 8.5x EV/EBIT on our FY ’24 estimates, which we don’t view too demanding as our estimates leave long-term upside potential. We retain our EUR 7.0 TP; our new rating is BUY (HOLD).