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#VA Automotive: Order intake & outlook offset Q1 weakness

Swedish automotive supplier VA Automotive today its Q1 2015 results which revealed a slow start to the year, as expected and previously guided for. Revenues of SEK 74,4m were below last year’s SEK 88,3m but up sequentially by 3%. EBIT declined to SEK -6,7m, compared with +3,6m in Q1 2014.

A change in models has been unfavourable for Automotive Components, which explains more than the whole deviation compared with Q1 2014. With capacity utilization att Läreda Mekan being att only 1/3 right now, the margin decline is not surprising. VA Automotive is working hard, however, to add volumes here.

On the positive side, order intake for Tools was strong at more than SEK 60m, of which the majority will be delivered during Q3 2015. The market for tools is described as strong and VA Automotive expects a period of big demand to be around the corner. Elsewhere, the company had final discussions for new orders for tools at Lidhs and SwePart in April, which resulted in orders worth around SEK 45m. VA Automotive’s operations in China have enjoyed strong order intake during Q1, especially on the export side, and the company is expanding capacity in order to meet the growing demand. Another positive is the reconstruction at NEVS, which is completed now and opens the door for meaningful investments and production start in Trollhättan. VA Automotive believes that it is in a good position to become a supplier for NEVS.

In efforts to increase its balance sheet, VA Automotive has sold a building in early May, which will create a realisation profit of SEK 8m in Q2 2015. Furthermore, the company made an agreement with a  large customer to benefit from their supplier financing. The agreement will reduce that balance sheet by SEK 15-25m in the coming periods. VA Automotive’s net debt amounted to SEK 67,9m at the end of Q1 2015, which implied a net debt/equity ratio of 185%.

Importantly, the company re-iterated its outlook saying that it expects the Components part to increase during H2 2015. Management expects to improve its full-year 2015 result compared with 2014 and says that while H1 2015 will be weaker than H1 2014, H2 2015 will be stronger than the same period one year ago. VA Automotive (Läreda Mekan) has also started to move production from Autoliv worth SEK 300m over three years, which is expected to show effects from Q3 2015 onwards. The company also reiterated its intention to move to NASDAQ Small Cap during 2016 and sticks to its long-term goal of reaching revenues of SEK 700m in 2017 (vs SEK 333m in 2014).

We believe that VA Automotive is well positioned to benefit from the strong investment climate in the automotive industry. With strong relations to Volvo and a rather transparent order/delivery structure, we think that investors should be able to look beyond H1 2015 weakness (caused by phasing out of the old Volvo XC90 model). Considering the strong order intake in 2015 so far and the takeover of production from Autoliv as of Q3 2015, we believe that VA Automotive could be able to book FY 2015 revenues of around SEK 390m. Obviously costs remain a question mark but with improved capacity utilisation and consequent cost absorption, we believe an EBIT margin of at least 3% should be possible. We therefore have adjusted our 2015 EPS estimate to SEK 0,42. At the time of writing, the VA Automotive share trades at SEK 4,32 which implies a 2015 PE-ratio of 10x. This seems extremely attractive and is a large discount to any other capital goods name listed in Sweden.

Nordic Investor


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