Today’s Equity Comment
14 August 2014
Investment cases and follow ups
BioGaia (Hold, UPGRADE)
We upgrade BioGaia to a Hold with an unchanged 12M TP of SEK180. A great company that now has underperformed the market for a period has reached a more balanced risk/reward in our view. Cost control has been impressive recently and the expansion of manufacturing capacity points to confidence in strong volume growth for the years ahead.
Golden Ocean (Buy)
Following a weaker-than-expected development in dry bulk spot rates through the summer, we are seeing signs of the market turning supported by increased iron ore exports from Brazil and Australia and also a strong grain season giving a helping hand to struggling smaller vessel types. This should lead to improved earnings and asset values, propelling dry bulk stocks.
We expect a strong q/q improvement for PRS in Q2, mostly in line with the street, with focus on the outlook for growing the ATH backlog further in 2014 We continue to see upside risk to 2014-16E consensus on our more positive view on the 2014-16 floatel market balance, with naturally still lower visibility on 2017. Attractive upside prevails to both NAV and historical div. yield trading ranges.
Sydbank disappointed on loan losses in Q1 after a thorough internal review of SME lending. In Q2, the personal banking portfolio was reviewed, which is likely to keep loan losses high for another quarter – probably the last quarter with such inflated loan losses. We remain cautious until we have seen the numbers and stick to Hold with a 12-month target price of DKK160 (DKK150).
We expect that a strong CoR and handsome investment returns will leave Topdanmark (TOP) with a DKK393m profit for Q2 (+41% y/y), which is likely to lead to a guidance hike. Still, the stock is not cheap – actually, it is now the most expensive Nordic non-life company. We stick to our Hold rating.
ALK posted a dull Q2 report as it has not been able to keep the growth momentum seen in Q1. Earnings guidance was lifted (but with a new definition) and is now in line with our forecast. ALK continues to emphasise as expected a modest 2014 impact from US launches of Grastek and Ragwitek. In 2015 it will stand its test. We repeat our Hold rating and 12M DKK810 TP.
Awilco Drilling (Sell)
Record-strong revenue efficiency in the high-margin backlog failed to deliver an earnings beat in Q2, with the DPS kept at USD1.15/share. The softening UK MW market means rates are trending back to ‘normalised’ levels in coming years, leading the AWDR DPS substantially down from now. We find current valuation far above fair values and stick to our Sell rating and NOK100 12M TP.
Bang & Olufsen (Buy)
We remain positive on the Bang & Olufsen investment case following the strategy update. We see the initial financial guidance and targets as a cautious minimum performance and maintain our estimates above guidance. Risks remain high and satisfactory earnings are still years away. Our 12-month target price of DKK90 is unchanged but with material upside.
Despite the lower than expected growth in Ostomy in Q3, we remain confident in our Buy rating and 12M TP of DKK560 for Coloplast. We still believe that the ongoing launch of its new Ostomy portfolio, Sensura Mio, will lead to double-digit growth in the Ostomy care division already next year. This should also drive group top-line growth towards the high-end of Coloplast’s target (7-10%).
Shipyard delays push the start up of Alma Galia to the other side of the weather window as first oil is now expected mid-2015 (H2 14). Yesterday’s negative share price reaction discounted for the negative NAV effect, we see no read-across from the Alma delay to the other projects and going forward the risk profile for the start-up Alma now looks very manageable. TP lowered to SEK20 (23). Buy reiterated.
FLSmidth & Co (Buy)
The Q2 14 results were as expected and showed further margin improvement q/q. We consider our investment case confirmed and expect further earnings improvement, while revenue improvement is still some quarters away. Priced as the cheapest Nordic mining equipment supplier, we find the valuation attractive. We maintain our Buy rating and 12M price target of DKK380.
Fast progress of the daratumumab programme led to another guidance upgrade. We see the delays for the expected Arzerra phase 3 read outs as immaterial for the share price. Two collaborations within immuno-oncology reflect the high company focus within immuno-oncology, but still very early stage. We maintain our Buy recommendation and DKK310 12M target price.
Despite the slightly weaker than expected Q2 earnings we forecast Holmen’s earnings recovery to continue into H2 driven by continued cost reductions and the weaker SEK. However, the absence of any new initiatives means we see less room for earnings growth next year. We maintain our Hold recommendation and SEK245 12-month target price.
Meda (Not rated)
Meda disappointed with a cut of guidance for FY2014. The revision was tied to manufacturing issues, generic competition and a slow roll-out. Most of these effects are temporary with possible bounce-back effects in 2015. Emerging markets and OTC bounced back positively. While Dymista was in line for the quarter, comments for 2015 and beyond were lighter than we had hoped for.
Sampo’s Q2 underlying results were largely in line with our estimates. Sampo’s large exposure to Sweden remains a relative weakness versus peers and lower bond yields put more pressure on investment income in 2015E. The profit and dividend driver for Sampo remains Nordea (Buy – TP SEK105). We keep our Hold rating and target price unchanged at EUR37.50.
Spar Nord (Buy)
Q2 net profit was largely as expected, although with a significant negative deviation on costs (mostly a one-off) and a similar positive on associated companies (most likely more sustainable). The key trigger in the Spar Nord shares is the Q3 report, where we will see significant tailwind to revenues and in this light, we continue to find Spar Nord attractive.
We reiterate our Sell recommendation on Stockmann and lower our target price from EUR9.0 to EUR8.0. Gross margins remain under pressure from price campaigns and the weaker rouble, opex savings are coming in slower than we had hoped and July sales were clearly below our expectations. We now expect Stockmann to post a net loss for the full year.