Coor: Delivering on its promises - ABG
This is a third party research report and does not necessarily reflect our views or values
Better Norway offset by losses in Denmark
Coor managed to turn both organic sales and EBITA growth positive in Q2, delivering EBITA 7% better than Infront consensus. As management guided, we saw margin improvements from the reorganisation in Q2. The programme was completed towards the end of Q2, which means that we should see the full effect of the savings in H2. That being said, our view is that this is relatively well-reflected in the estimates, which is why we make no material changes to our long-term estimates. The big surprise in Q2 was better variable volumes in Norway (driving 37% earnings growth for the segment), of which around half should be treated as a one-off, according to management. As such, we raise Norway EBITA by 12-7% on '25e-'27e. On the other hand, Denmark remained challenging, and lost a significant contract that expired in Q4. We therefore cut Denmark EBITA by 0-5%. The net effect is that we raise '25e by 5% and '26e-'27e by 0-1%.
Balance sheet now in better shape
We believe a key concern for the share has been the elevated gearing (3.4x in 2024), combined with negative lease adj. FCF in 2024. We note that the cash conversion has improved to more normal levels in H1'25 (84%) with LTM at 40% in Q2, up from 29% in Q1, which we think will improve further in H2. As a result, we expect that gearing will fall to 2.4x in Q4; this should allow for more aggressive capital repatriation in 2026. A return to the five-year average dividend would imply a yield of 9%.
Gap to peers closed
The multiples have expanded with the share recently, and are now trading at 11x adj. EBITA 2025, falling to 9x in 2026 when we expect the company to reach its margin target of 5.5%. Based on this, the share is now trading relatively in line with Nordic service peers, with higher gearing but better FCF yield (10-12% vs peers 8-10%).
Coor managed to turn both organic sales and EBITA growth positive in Q2, delivering EBITA 7% better than Infront consensus. As management guided, we saw margin improvements from the reorganisation in Q2. The programme was completed towards the end of Q2, which means that we should see the full effect of the savings in H2. That being said, our view is that this is relatively well-reflected in the estimates, which is why we make no material changes to our long-term estimates. The big surprise in Q2 was better variable volumes in Norway (driving 37% earnings growth for the segment), of which around half should be treated as a one-off, according to management. As such, we raise Norway EBITA by 12-7% on '25e-'27e. On the other hand, Denmark remained challenging, and lost a significant contract that expired in Q4. We therefore cut Denmark EBITA by 0-5%. The net effect is that we raise '25e by 5% and '26e-'27e by 0-1%.
Balance sheet now in better shape
We believe a key concern for the share has been the elevated gearing (3.4x in 2024), combined with negative lease adj. FCF in 2024. We note that the cash conversion has improved to more normal levels in H1'25 (84%) with LTM at 40% in Q2, up from 29% in Q1, which we think will improve further in H2. As a result, we expect that gearing will fall to 2.4x in Q4; this should allow for more aggressive capital repatriation in 2026. A return to the five-year average dividend would imply a yield of 9%.
Gap to peers closed
The multiples have expanded with the share recently, and are now trading at 11x adj. EBITA 2025, falling to 9x in 2026 when we expect the company to reach its margin target of 5.5%. Based on this, the share is now trading relatively in line with Nordic service peers, with higher gearing but better FCF yield (10-12% vs peers 8-10%).