NCAB Group AB (publ)
STO:NCAB
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
56
88.35
|
| Price Target |
|
We'll email you a reminder when the closing price reaches SEK.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
NCAB Group AB (publ)
You don't have any saved screeners yet
Ladies and gentlemen, welcome to the NCAB Group Q3 Report 2021. Today, I am pleased to present CEO, Peter Kruk; CFO, Anders Forsén; and Head of IR, Gunilla Ohman. [Operator Instructions] Peter, please begin..
Thank you very much. So today, it will be myself, Peter Kruk and Anders Forsén, who will be presenting. And if you move to Page #3, we will be covering a number of topics. We have a strong result in the quarter and good growth that we want to present. We're also giving information about 2 recent acquisitions. We have also landed a new credit facility, which would add SEK 750 million for further boosting further acquisitions. And we have also yesterday called for an extraordinary general meeting, where we are proposing an extra dividend of SEK 10 per share. And we're also proposing a split of 10:1. And we have also taken the decision that given our current performance, we will be reviewing the financial targets in 2022. Okay. If you move to the next page, as we start by looking at quarter 3. So we've had yet another strong quarter. The order intake, which has been very strong already in quarter 1 and 2 has continued strongly in quarter 3, and the order intake is up 86% in U.S. dollar, which is our trading currency. And if we look at comparable units, where we exclude effects of acquisitions, the increase is 68% in growth. What we've also seen during the quarter that lead times have stabilized during the first half of the year, we saw increasing lead times, but these have now normalized in the quarter, also stabilized. And we can also see therefore that our order book is normalizing. We continue to see benefits of our local presence in Asia close to the main manufacturing hubs, and that is giving us a competitive advantage and helps us to grow our market positions. Positive is also that our recently acquired companies are all performing very well. And then looking at net sales, we grew up to SEK 864 million in the quarter, which is an increase of 66% in U.S. dollars and 50% increase in comparable units, excluding acquisitions. This, in combination with a well-preserved gross margin and development there has led us to generate a record EBITDA and EBITDA margin. The EBITDA in the quarter amounted to SEK 123 million compared to SEK 50 million in 2020, which is an increase of 146%. And our EBITDA margin amounted to 14.3% versus 9.3% in prior year. Anders?
Okay. Thank you, Peter. So we are happy to announce that we have made another good acquisition in October. We acquired Elmatica from a very good competitor to us and located mainly in Norway. It is an old PCB trading company with a long history, a lot of good technical skilled employees and people. So that is really, really positive for us. I think we have a very similar business model, selling in the high mix low-volume area. And of course, they also have a very high quality focus. They have some 45 employees. Many customers are in Germany, Sweden, Denmark, Norway. And they have rather good sales. We expect about SEK 370 million in revenue for the full '21 with a profit level of some SEK 45 million. The purchase price was SEK 315 million, and we have a potential additional earn-out based on the gross profit development for 2021. We see some synergies in purchasing power, Elmatica do not have the same presence in China or Asia as we have. And we see also that we get a lot of good competence from aerospace, defense business and with the high skilled people they have in Elmatica. So we think this will be a really good win-win for all of us. Also, in September, we acquired RedBoard Circuits in U.S.A., a smaller company, revenue estimated of some USD 5 million, 5 employees. They also is a rather good fit to our business. We're adding on some customers that we are looking for. And we see even here that we could sort of add synergies in purchasing power and how we can use the benefit of other factory management team in China to improve the conditions for the customers of former RedBoard. It's good to see that the acquisition path is continuing. On next Page #7 then, as Peter said, we did have some decisions by the Board yesterday, which says that we will propose an extra dividend of SEK 10 per share. And the purpose is a little bit to actually add on some net debt. We have a target of net debt to be -- higher than it is. And we also have a strong balance sheet for that. At the same time, we propose to do a share split 10:1. And in connection with that, we have created a new loan facility with Nordea, which means that we will replace all our existing loans with a new loan, and we will add on roughly SEK 750 million. So that means that even if we do the dividend, we will have bolstered our possibilities for further acquisitions. So we will roughly have SEK 350 million more after the acquisition of Elmatica and the dividend that we had before. So this is a boost to the possibilities to continue to grow through acquisitions. Peter?
Very good. Moving to Page 8. So this is where NCAB is at the end of the quarter. So we are today a little bit more than 500 employees in our company. We have 27 main factories which we're working with. Important to remember is that we don't own any factories ourselves, but we work with partner factories. And out of our 500 employees, we have close to 100 that are working only with factory management sourcing qualifying factories as well as driving improvements in these factories and securing deliveries. Our focus is on demanding customers. We're focusing primarily in the high mix, low volume area. And we are aiming to supply with 0 defects, produce products sustainably and offering the lowest total cost for our customers. And our vision is to be the #1 PCB producer wherever we are. We are already the global leader -- but again, it is -- as you may have heard before, it's a fragmented market where whilst we are the leader, we are still only in a market share of less than 2% in the high mix low-volume segment. So a lot of opportunities for growth. If you move to the next page, what we do, again, is printed circuit board. So the products you see on the far left, the board upon which semiconductors are mounted to then become an electronic brain in any kind of electronic products. Moving to Page 10, a little bit of our history. The company was started in 1993 and has had then a growth expansion first in the Nordics, then expanding into more of Europe and then further into the U.S. and other markets. We also see that since the IPO, we have further increased our activities in the acquisition area, and that is now a core part of our growth strategy that is further boosting our overall growth. Anders?
Okay. So looking forward to acquisition pipeline we have. Still a lot of opportunities. As we have said before, there is a very fragmented market with many smaller companies. We have identified and shortlisted roughly 45 companies that could be suitable. And we are trying to actively contact them and get into discussions. The other good side is as well that we -- after the acquisitions we have done, we see a lot of companies that would like to sell contacting us actually. So it's 2 ways of getting into new leads, which is really good. And as you know, when we do the integration, we really see some good benefits on using the large team we have in China and our factory panel. And very often, we can see that we can increase margin and increase payment term or improve payment terms and so on. So there are a lot of good synergies on the sort of purchasing side. So still a positive pipeline out there. Going then to next slide, #12. Just to give some very quick note of the quarter. As we said before, we're very proud of the results we have done. We saw a growth of 61% in net sales, up to SEK 864 million and measured in U.S. dollar 66% up. And what we also can see is that this growth really leveraged the EBITDA because we don't need the same kind of resources to handle all the new revenue. And in some way, we can see that the increase seen in net sales really converted into profit. So we are happy to see that the net EBITDA increased 146% up to SEK 123 million. And we also have a record high EBITDA margin of 14.3%, which we're very proud of. And the next slide shows the year-to-date numbers. It's more or less the same trend. We see into Swedish krona, the growth is 40% and in U.S. dollar, 55%. And even here, we can see that we have more than doubled EBITDA, and we are year-to-date at 12.7% EBITDA margin.
Okay. Moving on to Page 14. One thing which is very positive is that we can see we have very strong growth in all regions. So we can see the Nordics have really increased its growth rate and has now grown by 60% organically. Europe up similar growth rates, excluding acquisitions and up 100% with the acquisitions. And also now U.S., the growth rate here has been increasing. We're now at 25% -- roughly 25% excluding acquisition effects. In prior quarter, we were just below 10%. So a good increase in NA also and East continuing strong with 50% -- up to 50% growth in the quarter. And also we can see a good pull-through and margin improvement in all different portfolio of regions. So the growth we can see in the following page, there are some fundamentals that is helping our growth apart from the general market recovery. Our focus has been -- is on the high mix, low volume industries, which predominantly means industrial applications. And this market analysis done by IPC, let me highlight the benefits we are partly seeing in the coming years. The fact that historically, a lot of electronic growth has been driven by consumer PCs, mobile phones, audio video equipment. What actually we're seeing now is that there is a trend of -- or a fast-changing trend of increasing the electronic content in industrial products and applications. And some of the drivers for this is Industry 4.0 or Internet of Things as an example, which means that you want to be able to access and control industrial equipment by remote. And that, of course, adds more intelligence and more electronics to these industries. And this is something, of course, that we will be benefiting from in the coming years. So that is a positive growth for us. And on top of that, we see, of course, the continuous growth where local production in Western Europe and the U.S. is declining versus manufacturing in Asia. If we then move to the next page, Page 16, positive for us as well. And there's also a key element, and we're hoping to generate the financial performance is that we have been able to manage the situation this year with the raw material price increases that we started seeing in quarter 1 and quarter 2. And in quarter 3 now that these are translating -- these orders are translating to sales, we can actually see that we have successfully been able to manage those price increases and transfer them over to our customer base. So we are preserving and slightly improving our margins versus prior year. Okay. Anders, over to you.
Okay. On next page then, as we said before, the order intake continues to be very strong, and we see also an increase of 86% in U.S. dollar. And even if you take that for comparable companies, excluding acquisitions, we are up 68%. So it's really good to see that the market continues to grow. The good part for that is to also say that we don't see any increased lead times. I mean we could notice huge order intake first and second quarter due to longer lead times, but we estimate that they are stable right now. So it's more real market growth we can see. And of course, the order intake we have had in the first half year shows up in a good revenue. And we had a growth in net sales of 66% or for comparable companies, 50%, which we, of course, are happy for. Next page then, going into the results. As I said before, I mean the increased revenue really pulls down to the EBITDA, which means that we can have a good leverage, and we have managed to have 14.3% in EBITDA margin for the quarter, which is we're really proud of. That means, of course, earnings per share is increasing. The only thing that is maybe a little bit negative in this report is that we see increasing working capital. We estimate that to be temporary, and it's very much due to longer lead times on sea shipments. And so one we also need to have some buffer stock because we have preorders to secure deliveries to the customers. And all of that has, of course, created a lot of extra working capital. But when we see that the lead time is going back to normal, and we expect that to go down to a more normal level. So normally, we have something around 8% of our last 12-month revenue as working capital and we are in this quarter up to 11%. But we are working actively on getting back to lower numbers again. Looking into the different segments. On next page, we start with Nordic. Also, Nordic, we see a very good growth in order intake. We could have seen that Nordic has been a bit slower in the beginning of the year, but we see that third quarter really picking up, and we see an increase of 76%. Also, net sales is growing about 58%, measured in U.S. dollar. We can say here that we see growth in all our companies in Nordic, but Norway is the leading star where we do have a lot of business to electric vehicle charging, et cetera. So Norway is really booming. EBITDA for the segment, more or less doubled compared to last year, of course, connected to strong growth, but also increased profitability and increase in gross margins. And we ended up with 18.6% EBITDA margin for the quarter, which was really good. Next page, we can see Europe, which is the most fastest growing segment for us. And we also have seen very strong growth in our main markets, Germany, Netherlands and U.K. And of course, that will boost the growth for the segment. Also here, we can see order intake increased by 132%. And for comparable units, almost doubled, it increased by 92%. We see also a strong growth in net sales, both for including acquisitions and for the comparable companies. And also here, we can see a lot of synergies from the acquisitions made both in Italy with Prevent and the Netherlands and how we can together see better improvement in the results. And that's 1 reason why the EBITDA margin has increased so sharply between the years. And as I said before, the acquired companies really doing well. And I think we can see some add-ons with our old customers when we use our factory panel and can maybe upsell to the customers. It's good to see. Next page, we're going to North America. Also here, we see sales growth, a little bit slower than the other one, but still good numbers. Order intake, up 42% and net sales up 28%. You can say maybe here, the net sales is a little bit impacted at from the RedBoard Group acquisition. There are some customers with low margins, smaller customers that was not really fitting into NCAB. So therefore, we see this lower growth. But on the other hand, profitability has increased much more. So we see strong profitability increase, and that is sort of the plan that we add on the gross margin for those customers. And we have seen a good effect on that one in U.S. and also happy to see that we could acquire RedBoard here in September. As mentioned last time, we had this Paycheck Protection Program loans in U.S.A., about SEK 11 million that were granted in second quarter. So then we have an extra boost to the profit, but the dotted line is more or less the real development of the EBITDA margin. And finally, the next slide, going to segment East. Here, maybe we can see a little bit of a slowdown in the order intake still increasing, but not as much as in the other segments. I think maybe Russia has been the market where we see a bit slower growth. And I think a lot of customers in Russia have had some issues with component -- lack of components and so on. Anyway, revenue is still increasing at 48%, and we see an improved profitability. Here, China is driving that one, and we are selling a lot of high-tech products into the Chinese market, which means that we can have a good profitability in China. So EBITDA improved here as well. And then some KPIs, return on equity, 31%, up versus last year. Net debt versus EBITDA a little bit increased, but they're still far below our target. Solvency is good. Net working capital, as I said before, it is the only way -- the only parameter we think is not really good in this report. So that has increased due to mainly increased inventory or goods in transit from Asia to Europe and U.S.A., which also means that we have increased net working capital versus revenue. Available liquidity is SEK 320 million. And if we then say what's happened after the new loan facility, the acquisition of Elmatica and the proposed dividend, that number will be between SEK 550 million and SEK 600 million. So that means that we will -- even if we do the dividend, we will boost our possibilities to further grow with acquisition. Peter?
Very good. And then summarizing a bit looking at our strategy. We can see that we are still very much in a growth focus, where we're focusing primarily on growing our market shares in Europe, U.S.A. and East. Even if there are also growth opportunities in Nordics, those are our primary focus. We're also working on deepening our collaboration with existing customers. With that, we can provide them with more services and drive both growth, but also provide higher value services and improve our margins. We are also looking to expand geographically, and that might be by adding new markets to enter but also to strengthen our local presence in certain regions or markets where we are already active. And finally, we are acting in a very fragmented market with a lot of small local family-owned companies, and that also offers opportunities for us to drive consolidation through acquisitions, which is a core part of our strategy. And with that, I believe we'll close today's presentation and open up for questions.
[Operator Instructions] And we received the first question. It is from Klas Danielsson, Nordea.
Congratulations on a great report. So a few questions from my side. But to begin, I was just wondering between the kind of longer lead times, I guess, there's still longer year-over-year. New customers price increases, and I guess you have some underlying volume growth as well. Could you kind of help us break down the components in the order intake growth in this quarter, please?
Yes. I think we can maybe comment by saying we've seen throughout this year to give you a bit of background. We saw already in quarter 1, where we have an order intake of something like SEK 980 million, and we were really above SEK 1 billion in quarter 2. I think in the beginning of the year, we saw a very quick ramp up. As lead times were increasing, people were forced to place orders further out. So we had a non [indiscernible] additional order intake, which was primarily for people securing future deliveries. I think what we have seen in quarter -- starting in the summertime has been that the order situation has kind of stabilized. We don't see order incomes increasing anymore. And with that, we have now come in to more of a normal order packing. So we're now seeing order volumes being closer to reflecting the actual need. And I guess as we will see, if and when we see order lead times declining, then we could expect that we will have a, say, a short-term correction in the order of influx, where that extra order buildup that we saw in quarter 1, quarter 2 will normalize. But then if you look on the revenue side, then we can now see that order intake that we saw in quarter 1 and quarter 2 are now translating over to sales. So which also then confirms that what we saw that the order intake we saw in quarter 1 and 2 was not just an event of people placing orders with longer lead time to be safe but actually, if they are affecting [indiscernible] also.
All right. That's fantastic. So essentially, the kind of 68% organic order intake is -- that's pretty much reflecting underlying volume increases?
Yes.
And part of that is also, of course, new pricing. I think we said that pricing maybe have increased some 8% to 10% on average. And we saw the price increases starting in fourth quarter 2020 and then enter into first and second quarter '21. And I think it's first now in the third quarter, we can see that realized or materialized in the revenue. So of course, part of that is also price impact.
All right. Fantastic, fantastic. That's super, super interesting. So -- and then I mean you mentioned that you do need to increase personnel a little bit. Can you give us some more flavor on this? I mean how much do you need to add in OpEx? Are there any exceptions there?
I think we overall have a plan to continue to develop new markets. And I think we can see that, especially with that growth, we will need -- an important part is supporting our customers and the inside sales as well as the outside [indiscernible] activities. I don't have a number to give you exactly here now. So I think we'll need to come back on that one. But I think it's fair to say that during the spring, especially there has been a big work flow on our teams, not only because the volumes are up, but also because we've had an unstable delivery situation where both prices and lead times have been fluctuating. So there has been an extra work during the springtime, especially where for each and every order, there's been a lot more work in our organization. That thing is improving somewhat now. So that's a little bit of offset, but at the same time, we will be investing in further growth.
Okay. That's fantastic. On the -- I mean I do have respect for that, this is very difficult, but on the kind of working capital swings there, I mean do you have any kind of time estimate when we should kind of expect this to normalize a bit? Is it over the coming 3 quarters or the coming 12 months, essentially, that we will have to live it with this? Or do you have any kind of broad estimate for us?
It's difficult to say, of course. But this will last for a while. Hopefully, we will see some improvement in spring, I would say. But it's just a huge guess right now. But we can see some -- I mean the freight situation is not getting worse anymore at least. So that's a good sign. And hopefully, that will help us.
Yes. I mean, you can see it in 2 ways. You can see it when you have more stability in the delivery lead times which are long, that means that then we can start trimming down some of the buffers and the sort of safety networks, and that will help us to gain some days on the working capital as well. And then, of course, as we see delivery lead times come down, then we'll see the benefits of not having additional weeks of both transport, which is then in our books of business. So -- and that second part is a bit harder to judge. I think the first part we are seeing now. So hopefully, we can drive some improvement but really coming back, for that to happen, we will need to get a number of weeks out of the transport lead times.
All right. Fantastic. I mean just 1 last question from my side. You mentioned the kind of increasing trends in electrification in the industrial segment. Could you help us understand what type of magnitude that is on the market growth? Is it going from 4% to 8% or something like that? Or how much of volume in -- volumes increasing in a broad perspective?
I think what we have seen is the -- based on this also this market study that historically, the electronics market has been growing on average by roughly 3% as a market. And now I think the view is that, yes, the electronics market is going to be overall quite positive in the coming years, and maybe we'll be growing more like 4%, 5%. But then if you look more into these [indiscernible] with the kind of different segments, then actually the more industrial segments, which are typically our customer focus. Then we're looking at growth rates maybe more 6%, 7% instead. So we are looking at a high underlying growth rate. And then, of course, on top of that, there is the change between local manufacturing or smaller local manufacturing in Western Europe or U.S., which is translating to the bigger players. And then you also, on top of that, have the fact that we think that we are really making gains in terms of market share because we have a very strong offering for that industrial customer base. We are able to provide access to the leading factories, the leading technologies and we, of course, have the purchasing power to provide them at reasonable terms as well. So we have a number of things that are helping us drive the growth beyond what is the pure market.
The next question is from Robert Redin, Carnegie.
A couple of questions, if I may. So on that organic growth, I mean, comparable units in U.S. dollars, up 50% year-over-year. It's new customers. Has that been a big contributor to that 50% number? I'm thinking also about next year. I mean if you can -- in the coming years, ramp up a lot of those new customers if that has been a big contributor?
Yes. That is a very good question, Robert. Thank you. And I think actually, this is something where I feel quite confident also for the longer-term development of our company is that throughout the whole pandemic situation where there's been sort of fluctuations in demand and also a very strong comeback in the overall market, we are continuously focused very much on building the long term by working on winning new customers and also winning new part numbers. And I'm also very happy that we are seeing a lot of new part numbers. That pipeline is very good. We're winning new customers, and we have high record levels of new part numbers being one. So I cannot give you exactly number of the growth we're seeing because typically when we win new customers and new part numbers, then that translates into real sales volumes a year or so. Normally, you start with quite low volumes. But the fact that we are winning a lot new part numbers and we're adding new customers to our portfolio, that is a very good basis for driving sustainable long-term growth.
Of course, there are some -- I mean third quarter 2020 was lower maybe than normal, but anyway, we have to remember our organic growth 2020 was in U.S. dollar, maybe minus 1%. And then we have this high growth right now. So it's not really -- it is really new customers, new part numbers, new activities.
Right. And if there is a lag, we should be -- when you can ramp those up, it's something that supports next year and the year after organic growth.
Yes.
Yes.
When you'll be up against what will be looking like, very tough comparisons?
But I think we do believe that we are building a portfolio, also sustained growth in the future.
Perfect. And as, I didn't quite hear what you said. You said something about the Europe margins because Europe margins used to be a bit lower than the group average and now they were sort of twice of what -- 2x what they were last year. There has been acquisitions and so on, impacting that. But what do you say about margins there? Are they sustainable at these kinds of levels?
Yes. I would say they are maybe a little bit high, of course, because we look going forward, we need to recruit, and the segment we will recruit most people is probably Europe. To have sustainable organic growth, we need more resources. So probably we'll add on some more resources there. On the other hand, we see that the acquired company in Italy is doing very well with a high profitability over -- well over 12%, 13%. We also see good development in Flatfield that we acquired 1.5 years ago. And then we can see that we have in our main markets, Germany, we have developed a lot. We see good synergies, and we can see an improving gross margin and also an improving EBITDA margin. So we can see, I think there's a lot of synergies of scale, which we can see right now in Europe. I mean before it was a lot of many smaller customers, but we see that we have grown all the markets, all companies. And of course, we still have the same only 1 MD, only 1 finance person, et cetera, et cetera. So there are some advantages of scale that is now visible, much, much stronger in Euro segments. So I think we can sustainability, a much higher EBITDA margin than before, even if maybe this quarter, it's boosted in a good way.
So the rapid growth we've seen in the last 2 quarters, we are getting a lot of on top volume right now without costs following the same speed. But overall, we are long-term developing positively.
All right. That makes sense covering sort of country -- and then just a flection on sort of delivery performance. I mean, your company standard, delivering 50% more stuff not quite because prices are up, but going into Q4, do you feel you have the same or better delivery capacity, call it, in just sheer volume delivery capacity?
Yes. If we look from where we are in terms of delivery performance and quality, I think 1 thing which is very positive that we have throughout the whole pandemic actually been able to keep quality at extremely high level, which is very good because it means also in our factories, we have been able to avoid anyone taking shortcuts to get goods out by compromising quality. So that, I think, is very positive. And also if we look upon delivery reliability, we are actually improving continuously. We were -- we had a -- a low point was maybe somewhere in the early second quarter. But from that position, which was also meant to be okay, we are continuously improving. So whilst we are not at our ideal position, we are at a good level, and we are improving over time. So we feel somewhat optimistic also for the fourth quarter here. We don't see a risk of things going the other way right now.
Your next question is from Anders Rudolfsson, DNB Markets.
First of all, congratulations for a fantastic report that seems like to use all the battery charges in Norway to really [indiscernible] your growth here. So very well done. First question, and I have 2 actually. The first one is, where do you see this, so to speak, new normal growth would be? I mean, 68% growth is kind of hard perhaps to continue to grow at that -- I mean look into a few quarters next year, where do you think this new normal growth would be? And second one, can you say anything about how Q4 has started?
Going back to the growth question. Of course, we have to remember that we are comparing to a somewhat lower revenue in 2020. And of course, 68% is not really sustainable. And we also acquired companies in that, but it's really difficult to predict the future growth rate. But anyway, I think we do a lot of activities to secure a good growth, but what that means is 60%.
I mean, overall, we have a good fundamental underlying growth in the industry. We are making gains in terms of market share. We know for sure that say, when we get into 2022, the first 2 quarters in '22 -- or at least first quarter was low in comparison to the current numbers. So there, of course, we will be able to show very high growth numbers. But then second half of next year is going to be -- then as you say, we will have tougher comparables. But overall, we foresee a growing market and growth opportunities.
And my second question was, can you say anything about how Q4 has started?
We cannot comment really on Q4, but I think we can see that we are exiting Q3 at a good pace, so.
We have no further questions by the telephone lines.
And we have no questions in e-mail either. So thank you very much.
Thank you, all.
Thanks for listening.
Ladies and gentlemen, thank you for your attendance. This conference has been concluded.