Nokian Tyres (Hold, TP: EUR37.00) - Big beat
Our proprietary study shows solid price increases for Nokian Tyres in key markets while industry data indicate a very strong volume recovery. We have raised our 2021–2023e segment EBIT by 13–9% and are 12–4% above consensus. For Q2 (report due on 3 August), we expect sales of EUR431m and segment EBIT of EUR97m (15% and 26% above consensus, respectively). We have raised our target price to EUR37 (32) but reiterate our HOLD. Proprietary pricing study shows price increases. The company guided for a raw materials cost headwind in 2021, which it expects to be able to broadly offset with higher prices. Our proprietary study, which tracks sell-out prices of >25,000 tyres, indicates sell-out prices for Nokian Tyres' products in Russia rose c7% on average throughout Q2, resulting in a YOY increase of c4%. Similar price increases were visible in Germany while the Nordics and US were roughly unchanged. Given that the raw materials headwind will affect Nokian Tyres mainly in H2 but price increases seem to already have been realised, we believe price/mix could benefit in Q2. Q2 preview. We forecast Q2 sales of EUR431m (15% above post-Q1 Vara consensus), based on 63% growth at constant FX (on an easy comparable as Q2 2020 was -32%; consensus: 30%). Our above-consensus growth estimate is supported by the official national tyre production statistic from Russia, which has paced near all-time high levels YTD, as well as announcements from Nokian Tyres that it was adding shifts to its factories in Finland and the US to meet increasing demand. We estimate EUR97m segment EBIT is 26% above consensus and corresponds to a margin of 22.4% (consensus: 20.6%), which would be the highest since Q4 2019. HOLD reiterated, target price raised to EUR37, corresponding to a 2022e EV/EBIT of 13.6x (5% above the NTM 3-year average). Although we are above consensus, we see the risk/reward as neutral at the current valuation. The next trigger could be the CMD in September, where we expect the company to set new financial targets including: EUR2bn in sales in 3–5 years and a segment EBIT margin target of 20%Nokian Tyres is a tyre manufacturer. Co. mainly sells its products in the aftermarket. Co. and its subsidiaries include the Vianor tyre retail chain, which provides wholesale and retail services in Co.'s primary markets. The core business units in Co. and its subsidiaries are Passenger Car Tyres, which develops, manufactures, and markets summer and winter tyres for passenger cars and delivery trucks as well as SUVs; Heavy Tyres, which focuses on special tyres; as well as Vianor, which provides tyres for all vehicles: passenger cars, vans, trucks, and heavy machinery. In addition to Nokian-branded tyres, the Vianor tyre retail chain sells other tyre brands and a variety of motoring products.
DNB Markets is the investment banking arm of DNB Bank ASA and is focused primarily on the Nordic region, as well as internationally on niches such as global shipping, energy and related services, and seafood. DNB Markets offers services in FICC, Equities and Investment Banking advisory from offices in Oslo, Stockholm, London, Singapore and New York. Equity research coverage is offered on c250 Nordic companies. DNB was ranked no.2 in Extel Nordic Research 2017. The DNB Markets’ Credit and FICC Macro & FX Research teams are repeatedly highly rated by Prospera Nordic Institutional Investor Surveys.
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