Aspo - Telko’s value is overlooked

Q1 figures in fact gained from the turbulence

Aspo’s Q1 revenue was driven to EUR 160m, compared to the EUR 132m/136m Evli/cons. estimates, by Telko’s high EUR 76m top line. We had estimated EUR 58m, and the figure was lifted by the extraordinary inflationary environment created by the war. Telko’s markets’ normalization is now postponed. Telko’s adj. EBIT reached EUR 8.6m, and Aspo’s EUR 10.3m EBIT was clearly above the EUR 8.0m/7.6m Evli/cons. estimates while there were EUR -4.9m in items affecting comparability. ESL’s performance didn’t come as a big surprise as it was known the war will have little direct impact on the dry bulk business.

We reckon Telko’s long-term potential hasn’t diminished

There are many moving parts but Q1 was overall a lot better than was estimated as the environment lifted prices and for that part supported the two raw material distributors. The war thus caused a short-term boost for Telko and Leipurin, but downscaling creates uncertainty particularly around H2. Leipurin will exit Russia, Belarus and Kazakhstan, which account for almost EUR 30m in revenue. Telko is reviewing possibilities to exit Russia, and we understand some 30% of Telko revenue may be affected. The closure is thus significant, but we understand its impact on margins will be modest. Telko’s long-term 8% EBIT target should remain relevant. We see Telko’s FY ’23 revenue down 20% from Q1’22 LTM; uncertainty hangs around the figure for the next few quarters, but we believe it shouldn’t take Telko too long to again reach EUR 15m EBIT. Demand for ESL’s handysize vessels temporarily softens in Q2 as customers adjust to the Russian situation, but larger vessel demand could compensate for this.

In our opinion valuation neglects Telko’s potential

Our estimate revisions are relatively small on an annual level. There are still many questions around Telko’s performance going forward, but the Q1 results were encouraging and in our view possibility for a positive guidance revision has increased. We view an EBIT of about EUR 40m a relevant possibility again in the coming years, which would correspond with the roughly EUR 30m and EUR 15m long-term EBIT levels for ESL and Telko. Our new TP is EUR 8.5 (8.0), and our rating is now BUY (HOLD).