• Q1e: still some de-stocking weighing on Medical
• Minor revisions, '25e-'26e EBITA up by 1% on FX
• Strong recent performance, cons. f12m EV/EBITA 17x

Q1e: de-stocking still to weigh on Medical

We expect Nolato to report Q1 sales of SEK 2,322m, down 6% y-o-y (-6% organic growth). As management warned following the Q4 report, we expect continued de-stocking in Medical, particularly in surgical equipment, which should weigh on both organic growth and margins. Within Engineering Solutions (Nolato's new segment, a merger of Integrated and Industrial), vaporiser heating products should now have stabilised on a sequential basis, albeit still down y-o-y, but the shortfall is now small enough to have a very limited impact at the group level. We estimate an EBITA of SEK 195m, roughly flat y-o-y, for a margin of 8.4% (7.8%). We are 1% below FactSet consensus on Q1 EBITA ahead of the numbers.

We expect margins to trend up during the year

As the current de-stocking issues in Medical subside, we expect gradually improving margins throughout '24e, and over time we argue that a normalised EBITA margin for Medical should be in the range of 11-12%. This margin recovery is expected to drive an 11% '24e-'26e adj. EBITA CAGR. We make only minor estimate revisions, raising EBITA by 1% for '25e-'26e ('24e roughly unchanged), mainly on updated FX assumptions. For '24e, this puts us 2% above FactSet consensus on EBITA.

Strong performance since obesity contract announcement

The share is up 14% since 2 April, when Nolato announced a new long-term contract for supply of medical devices for obesity and diabetes treatment with an "existing customer" (ABG note: almost certainly Novo Nordisk). On consensus f12m EV/EBITA, the share now trades at 17x, which is 15% above its five-year average, yet we note that the highest quality segment – Medical – has gone from ~35% of group EBITA to ~65% in the past five years.