• Strong Q4 driven by Engineered Solutions
• EBITA up 2% organically, but cancelled out by weaker FX
• Share trading at 16-15x '25e-'26e EV/EBITA

Strong Q4 numbers with EMC driving the beat

Nolato reported a strong set of Q4 numbers, with EBITA 3% above Modular Finance IR consensus and 2% above our expectations, with Engineered Solutions driving the majority of the beat. More specifically, the high-margin electromagnetic compatibility (EMC) products sub-segment, which has been struggling for several quarters, saw 20% organic growth, making for a substantially positive mix effect within Engineered. The company also managed a strong working capital release, leading to FCF/net profit conversion of 189%, and leverage is now the lowest it has been since 2021.

EBITA up 2% organically, cancelled out by FX

Following the Q4 numbers, we raise organic EBITA estimates by 2% for both '25e-'26e. This is driven mainly by higher growth assumptions in Engineered Solutions, where we take a more optimistic view on the recovery of EMC sales. Our organic estimate upgrades, however, are cancelled out by FX headwinds. On our new estimates, the share is trading at 16-15x '25e-'26e EV/EBITA and offers 3-4% lease adj. FCF yields.

In a good spot to increase the M&A pace

Acquisitions and expansion investments have been sparse in recent years, largely due to the priority being placed on stabilising the current business. Now, margins have stabilised in both segments, while ND/EBITDA (ex. leasing and pensions) has come down to 0.4x, and we argue the company is in a very good spot to increase the M&A pace. On this theme, we highlight the decision to keep the dividend flat in '24 despite EPS growing 52%, which we speculate could indicate a willingness to allocate capital more aggressively.