• Another impressive sequential margin lift
• '25e-'27e EBITA +4-2%, EPS +7-4%
• 14x '26e EV/EBITA, 5-6% '26e-'27e FCF yields

Another impressive margin lift

Nolato reported Q2 EBITA 5% and 7% above ABGSCe and IR consensus, respectively. The beat was broad-based, with better organic growth (2pp above ABGSCe), a better EBITA margin (0.4pp above ABGSCe, 0.6pp above cons), and both segments beating on EBITA. This marks the second quarter in a row with an impressive sequential margin lift, with clear improvements in former problem areas, including lifting the weaker margins in the US business and improving the low utilisation rate in the currently oversized Chinese production facility.

EBITA up by 4-2%, margin beat extrapolated

The Q2 EBITA margin of 11.6% was not only above our Q2 estimate of 11.2%, but also above our Q3-Q4 estimates of 11.0-11.4%, and management gave no indication that the strong Q2 margin was temporary or that it included any abnormal effects (although note Q3 margins are seasonally somewhat weaker). Because of this, we choose to extrapolate the stronger margins in our estimates, which leads to 4-2% higher EBITA for '25e-'27e. We also lower net financials, resulting in EPS upgrades of 7-4%.

Closing in on the margin target, but still room left

Having raised its EBITA margin target from 10% to 12% as recently as March of this year, Nolato is already closing in on its new margin target. It is likely that the speed of margin expansion that we have seen in the past two quarters (+0.9pp q-o-q in Q1, +0.6pp in Q2) will slow down, although from the company's comments it does sound like there is still some ground to gain in the problem areas mentioned above. Over time, we also expect the fast-growing, high-margin Materials business to provide a positive mix effect. The share is trading at 14x '26e EV/EBITA, offering 5-6% FCF yields for '26e-'27e, and we raise our fair value range to SEK 55-75 (50-70).