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Glaston’s Q3 orders and revenues were below our estimates. The outlook for the main businesses is increasingly diverging, with Insulating Glass performing well but Heat Treatment unlikely to recover soon. We have cut 2021E EBIT by 3%. We view Glaston as a high-risk case with re-rating potential if performance improves (EV/sales only 0.5x).

Impact on the investment case. Q3 was a disappointment in terms of orders and sales, but on the positive side, the performance of Insulating Glass (IG) business appears better than we expected. Orders in IG grew 2% y/y and the EBITA margin increased. IG should benefit from the increasing need for energy efficiency and its outlook for the coming years is promising. On the negative side, Glaston’s traditional core business Heat Treatment (HT) looks unlikely to turn around soon, with Q3 orders -52% y/y and lower sequentially. The smaller Automotive business also remains weak. Longer term, we see potential for a re-rating if the performance in HT and Automotive stabilises and IG continues to grow. In addition, the Heliotrope smart-glass partnership remains an option. However, these are unlikely to materialise soon and risks remain high.

Q3 20 review. Revenue declined 34% y/y due to low order intake from previous quarters and postponements of orders. Orders declined by 46% y/y and the order book was 40% lower y/y. The EBITA margin declined to 3.6% from 5.7% year-ago and adjusted EBIT was in line with our estimates, despite lower revenues. Glaston’s fixed costs were lower and synergies from the Bystronic acquisition helped. Net debt / EBITDA has increased to c. 3x, but Glaston has negotiated higher covenants and postponed debt repayments with its banks, so new equity is probably not needed.

Estimate changes. We have cut 2020E adjusted EBIT by 14% and 2021E by 2%. We have cut estimates for HT and Automotive, but increased IG. We expect flat sales in 2021E with HT still down y/y, but EBITA margin increasing compared to 2020E.
Valuation. The share has underperformed (-44% 12M). Valuation on EV/sales is low at just 0.5x 2020E, indicating 58% discount to the Nordic capital goods peers’ median (1.2x) and 41% discount to the lowest-valued stock in the peer group (Cargotec: 0.8x). We maintain our 12M fair value range of EUR 0.60-0.80 per share.

Source: Finwire News.