### Ferronordic: A Promising Investment Opportunity in the Machinery Sector
#### Importance of Selectivity in Stock Selection
Björn Davegårdh, founder of Börsveckan, emphasizes the importance of being highly selective in the stock market and viewing price declines as opportunities. For those interested in vehicle and machinery-related stocks with a focus on expanding regions, Ferronordic stands out as an intriguing company. Despite experiencing a significant drop since the peak at the end of 2021, the stock remains a compelling option. However, in BV 23-47, it was noted that the risk level was high due to a challenging market environment, leading to lukewarm stock performance. The declining European truck market could indicate a global economic downturn.
#### Analysis of Ferronordic’s Recent Performance
In Ferronordic’s latest quarterly report, the impact of the acquisition of the American machinery reseller Rudd Equipment Company is evident. The revenue surged by 62% to 1.1 billion SEK in the last quarter, primarily driven by the acquisition. Excluding the American segment, revenue actually dropped by 42%, influenced by decreased sales of new trucks and machinery in Germany and Kazakhstan. Additionally, the aftermarket business, which typically provides revenue visibility, also showed weakness, declining by nearly 4% organically (excluding the USA segment).
#### Future Growth Prospects and Financial Targets
CEO Lars Corneliusson remains optimistic about the company’s performance, particularly in the US market. The company’s strategic focus on upgrading the country’s infrastructure and federal/state infrastructure investment programs bodes well for future growth. Furthermore, the acquisition of Rudd Equipment has improved profitability, with a quarterly operating margin of 7.3%.
At a recent investor event, Ferronordic’s management unveiled ambitious financial goals, aiming to double revenue by 2024. With significant infrastructure investment needs in the US and Kazakhstan, achieving this target seems feasible. The profitability target of over 6% in operating margin is also attainable, considering the company’s historical performance pre-pandemic.
#### Debt Concerns and Market Outlook
However, a key concern is the company’s high debt levels, exacerbated by the acquisition in the previous year. The net debt-to-EBITDA ratio is currently at a concerning level of 4.8x, significantly higher than the management’s target of 3x. It may take until 2026 for the ratio to reach a more manageable level, posing a risk to the company’s financial stability.
#### Investment Thesis and Valuation
Despite near-term challenges, Ferronordic’s stock is valued at 12x EV/EBIT or 8x P/E for 2025. The valuation assumes a market recovery with increased sales volumes and improved financing conditions for customers. With the US market representing a substantial portion of the company’s revenue, there are ample opportunities to capitalize on infrastructure projects in the country.
In conclusion, while there are risks associated with Ferronordic’s high debt levels and market uncertainties, the company’s growth potential and strategic positioning in key markets make it an attractive investment opportunity for long-term investors.
### Analysis:
– Ferronordic presents a compelling investment opportunity in the machinery sector, with a focus on expanding regions and infrastructure projects.
– The company’s recent performance, driven by acquisitions and strategic initiatives, indicates growth potential.
– Ambitious financial targets and profitability goals set by management demonstrate confidence in future prospects.
– However, concerns over high debt levels and market uncertainties pose risks to the company’s financial health.
– Despite near-term challenges, Ferronordic’s valuation suggests potential for growth and long-term investment opportunities. Title: The Ultimate Guide to Making Smart Investment Decisions
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