• Germany weaker than expected, US stronger
• We make more cuts in Germany
• High leverage is the bottleneck for US expansion

Q4: Germany especially messy, US stable

Ferronordic reported Q4 net sales 10% above FactSet consensus, but adj. EBIT was SEK 19m vs. consensus' 24m, which also excludes one-offs tied to inventory write-downs in Germany (SEK -13m) and Kazakhstan (-4m). The US business continued its stable trend and beat our expectations by 9% on EBIT. However, the German business was especially messy in Q4, with an inventory write-down and a sell-off of old inventories at low prices that boosted sales but impacted margins negatively. Going forward, we expect the sales mix, and by extension margins, to be more in line with prior quarters, yet we note that even adjusting for these abnormalities, Germany was still weaker than we expected. Finally, group costs were lower than we expected, but we consider this to be within normal quarterly volatility, and it should not be extrapolated.

More cuts in Germany

Given the continued weaker-than-expected performance in Germany, we are forced to again push back the earnings turnaround. Along with minor revisions in the US, this amounts to group-level EBIT downgrades of 16-6% for '25e-'26e.

High leverage is the bottleneck for US expansion

Net debt has increased for nine consecutive quarters and is now SEK 1,978m for a net debt/EBITDA of 5.2x. The company maintains that it is optimistic about further expansion opportunities in the US business, and we agree with this from a longer-term perspective, particularly given Volvo's comments at its latest CMD that it plans to consolidate its US construction equipment dealership. In the near-term, however, we see the high leverage holding Ferronordic back from any expansion investments or M&A, making deleveraging its first priority. Finally, on our revised estimates, the share is trading at 11x '26e EV/EBIT, while our distributor peer group trades at 13x.