Boreo

Boreo reported Q2 2023 adjusted EBIT excluding PPA of EUR 2.4m, clearly above our estimate, although the top line was slightly soft. Temporary challenges continued in SSN and FNB, while the Sany exit caused EUR 0.2m in additional costs. Recently acquired businesses are performing well and Boreo should receive further support from Delfin Technologies starting at the beginning of July. The outlook is slightly dented due to macro uncertainties, while the company appeared confident about its annual operating EBIT growth target of above 15%. Our fair value range is unchanged, at EUR 40-48 per Boreo share. Marketing material commissioned by Boreo.

Boreo reported Q2 adjusted EBIT ex-PPA of EUR 2.4m, 31% above our estimate and 20% above Refinitiv consensus. Net sales of EUR 42.3m grew 5% y/y (-4% on organic basis) and came 3% below our estimate and 6% below consensus. Reported EBIT was EUR 1.7m, 19% above our estimate. Net sales and adjusted EBIT ex-PPA increased in all business areas, expect Heavy Machines. Operational cash flow was EUR 3.9m in Q2 (EUR -1.9m a year ago, including discontinued operations), supported by working capital release from SANY business. EPS of EUR 0.18 came above our expectation of EUR 0.16. In line with its guidance policy, the company does not provide short-term financial guidance. The company notes challenging business environment, while orderbooks remain at a good level and the company expects to continue on the path of an annual earnings growth of at least 15% in the future. In addition, the company aims to reduce its working capital from EUR 31m towards EUR 25m sustainable level during H2. Despite adjusted EBIT beat, we expect consensus to make only limited positive estimate revisions due to somewhat soft top line development.

Ahead of Boreo's Q2 report, we incorporate the Delfin Technologies acquisition into our estimates and take a slightly more cautious view on the market development. A slowdown in construction markets has continued, while we note a weakening order intake trend among capital goods companies. The company will likely continue making acquisitions after Delfin, although we do not expect any significant M&A in 2024 owing to its increased leverage. Following the SANY exit in Finland and Sweden, Boreo should be well positioned to continue making acquisitions. Based on underlying operations and M&A value-creation opportunities, we derive a slightly lower fair value range of EUR 40-48 (44-53) per Boreo share. Marketing material commissioned by Boreo.

Boreo announced this morning acquisition of Delfin Technologies, a Finnish health technology company with EUR 2.5m sales and EUR 1.3m EBIT (based on Finnish Accounting Standards). The company has grown strongly since 2020 with ~37% CAGR while EBIT margin has remained around 50%. Delfin serves its customers through distributors in more than 40 countries with main markets being US, China and Europe. If we assume 10% sales growth for Delfin in 2023E-24E with an unchanged EBIT margin of 50%, our 2023E-24E top line estimates would rise 1-2% and adjusted EBIT ex-PPA estimates by 7-13%. Delfin will be reported under Boreo’s Electronics Business Area. Delfin develops, produces and markets scientifically validated and specialized, hand-held skin and edema measurement instruments. Products are used in medical and dermatological research, as well as in R&D, safety and performance validation of self-care and cosmetics products. Acquisition price is not disclosed, while two thirds are paid at closing of the deal (beginning of July) and one third in one year from the closing. Payment is made with existing financial facilities. We believe the acquisition price to remain below EUR 10m and view acquisition as an interesting expansion which opens up a new segment for Boreo. In addition, acquisition should improve return on capital on group level if our assumption of acquisition price is correct. Following the acquisition, we see only limited room for additional M&A in 2023. We have a fair value range of EUR 44-53 per Boreo share.

Boreo reported Q1 adjusted EBIT excluding PPA of EUR 2.1m, slightly ahead of our expectation and Refinitiv consensus. The outlook has remained stable and the company does not expect any material weakening in demand. The SANY exit in Finland and Sweden should support Q2 cash flow by some EUR 2m, which bodes well for the M&A pipeline and higher return on capital. We make only minor underlying estimate revisions and expect more bolt-on acquisitions later this year. Based on underlying operations and M&A value-creation opportunities, we derive a slightly higher fair value range of EUR 44-53 (43-51) per Boreo share. Marketing material commissioned by Boreo.

Boreo reported Q1 adjusted EBIT ex-PPA of EUR 2.1m, 13% above our estimate and 5% above Refinitiv consensus. Net sales of EUR 41m grew 29% y/y in comparable terms (+12% on organic basis) and came 3% above our estimate and 5% above consensus. Reported EBIT was EUR 1.4m, in line with our estimate. Net sales and adjusted EBIT ex-PPA increased in all business areas. Operational cash flow was EUR 0.8m in Q1 (EUR 1.5m a year ago, including discontinued operations), burdened by EUR 1.1m higher working capital, while SANY exit should support cash flow in Q2. EPS of EUR 0.07 came below our expectation of EUR 0.17 owing to higher financial expenses. In line with its guidance policy, the company does not provide short-term financial guidance. Based on management comments on business areas, outlook appears to be stable to slightly positive going forward. We expect consensus to make only limited estimate revisions based on the Q1 report.

Ahead of Boreo’s Q1, due on 5 May, we maintain our estimates intact. The overall market demand has likely remained stable with variation within business areas. We model Q1 sales up 26% y/y, driven by acquisitions (we expect +1% y/y LFL growth). We forecast 57% y/y adjusted EBIT-ex PPA growth and 100bp y/y higher margin. In Electronics, we believe the end-market demand has remained solid, although we note uncertainties related to the timing of sales, especially within Signal Solution Nordic where Q4 sales development was clearly better than the company had expected. We model Electronics sales up 38% y/y, driven by 35% y/y growth through acquisitions. We expect Electronics adjusted EBIT-ex PPA margin to improve to 7.1% (5.8% in Q1 2022). For Technical Trade, we model 28% y/y sales growth of which 31% through acquisitions. We believe that Machinery’s power business has continued with a strong performance, while soft construction market has likely started to burden construction related sales and margins. We model Technical Trade adjusted EBIT-ex PPA to be up 33% y/y with 30bp y/y margin improvement. In Heavy Machines, we expect the company to give more clarity over the timing of exit from SANY operations in Finland and Sweden (we expect final exit during Q2). Boreo should be able to release couple of million euros of capital from its SANY business which then could be reinvested into e.g. acquisitions, we believe. For Q1, we mode 7% y/y growth for Heavy Machines, driven by improving availability and a healthy backlog. We expect EUR 0.2m adjusted EBIT from Heavy Machines in Q1 (up from EUR 0.1m a year ago). For Q1, we are 1% ahead of Refinitiv consensus on sales. On adjusted EBIT ex-PPA, we are 24% ahead of consensus, although we note lowquality of the consensus.

Boreo reported Q4 adjusted EBIT excluding PPA of EUR 2.5m, slightly above our expectation. Electronics continued to perform well, while group costs were above our forecast. Operating cash flow recovered strongly, driven by a release of working capital from inventories. Improving cash flows should be supportive in terms of further acquisitions. The company appeared fairly confident in its outlook for 2023 with strong order backlogs and good performance within business areas. Based on underlying operations and M&A value-creation opportunities, we derive a slightly higher fair value range of EUR 43-51 (42-50) per Boreo share. Marketing material commissioned by Boreo.

Boreo reported Q4 adjusted EBIT ex-PPA of EUR 2.5m, 10% above our estimate (no consensus). Net sales of EUR 45m grew 15% y/y in comparable terms (-5% on organic basis) and came 3% below our estimate. Reported EBIT was EUR 1.7m and included EUR 0.3m of items affecting comparability due to writedown in Heavy Machines. Net sales and adjusted EBIT ex-PPA increased in Electronics and Technical Trade, and declined in Heavy Machines. Companies acquired in 2022 had 14% adjusted EBIT ex-PPA margin in Q4, we calculate. Operational cash flow was EUR 3.7m in Q4 (EUR 0.6m a year ago), supported by EUR 1m lower working capital from inventories. EPS of EUR 0.16 came below Refinitiv consensus expectation of EUR 0.19. Dividend proposal stands at EUR 0.44 in line with consensus and our expectations. EUR 0.22 of the dividend is proposed to be paid at a later stage during 2023. In line with its guidance policy, the company does not provide short-term financial guidance. Based on management comments on business areas, outlook appears to be stable to slightly positive going forward. We expect consensus to make only limited estimate revisions based on the Q4 report.

Boreo will report its Q4 2022 on 3 March 2023. We take a slightly more cautious view, owing to a slower construction market and the exit from the excavator distribution agreement in Finland and Sweden, which is likely to burden margins in the short term. Boreo is well positioned to continue with smaller bolt-on acquisitions, although we believe the company is concentrating on organic growth, improving profitability and augmenting working capital efficiency at its acquired companies. Based on underlying operations and M&A value-creation opportunities, we derive a slightly higher fair value range of EUR 42-50 (42-49) per Boreo share. Marketing material commissioned by Boreo.