Sparebank1 Markets

16.05.2018 kl 21:44

Target price
Share price
Kongsberg Automotive | KOA NO
The “oil tanker” has turned

With reference to our update “Watch out, the “oil tanker” is turning!” from Nov. ‘17, we argue the oil tanker has turned and just left the port in the Arabian Gulf on its way to Far East. We expect tendencies to challenging weather conditions during the voyage, but still, we expect the oil tanker to arrive safely in port in ‘19e. Indeed, with 1) 1Q18 reported figures spot on expectations and according to the management plan, 2) limited positive estimate changes are triggered and 3) we argue our ‘19e NOK1.5 recurring cash flow EPS estimate is considerably de-risked. Thus, we are confident with assigning a higher multiple on our estimates, more in line with peers, and increase our target correspondingly. Hence, we reiterate our Buy rec., but lift our target to NOK15, corresponding to ‘19e P/E of 10x.
Our analysis
· With 1Q18 reported figures spot on expectations…
KOA delivered spot on our expectations with NOK285m in revenues compared to our NOK280m estimate. This was driven by 1) 6.1% YoY growth in “Powertrain & Chassis” and, 2) 6.2% YoY growth in “Speciality Products”. With revenues more or less in line with our estimate, EBIT (adj.) came in at EUR18.1m vs. our EUR17.7m estimate.
· …limited estimate changes is triggered…
With estimates spot on our expectations, we do only limited estimate changes in ‘18e to ’20. Indeed, on average in the period, our recurring EPS is kept unchanged and we model with NOK1, NOK1.5 and NOK1.8 in recurring EPS in ’18e-‘20e, respectively.
· …but we argue our estimates are de-risked and up our target to NOK15
With 1Q18 figures spot on expectations and the mgmt. plan, limited positive estimate changes and increased confidence in and de-risked ‘19e cash flow recurring EPS, we argue it’s fair to value KOA more in line with peers. Indeed, the reason for our upped target price from NOK12 to NOK15 is primarily driven by increased ‘19e P/E from 8x to 10x, which is still at a 20% discount to median peers. We are likely not to change our ‘19e EPS of NOK1.5 very much going forward neither, but we are likely to attribute a higher multiple as the restructuring and hence our estimates are de-risked further.