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US strength lifts total performanceFerronordic's Q4 sales were SEK 1,211m (+12% vs ABGSCe) with adj. EBIT of SEK 54m (+108% vs. ABGSCe 26m) for a margin of 4.5% (ABGSCe 2.4%). The sales and earnings beats were driven by a strong performance in the US, with Germany still struggling. Net debt declined by 18% y-o-y, but only 2% q-o-q due to tied-up working capital weighing on Q4 cash flow. However, due to the earnings improvement, ND/EBITDA dropped to 3.4x (3.9x in Q3'25), and we expect the company to reach its leverage target (<3.0x ND/EBITDA) in the current year. EBIT raised by 5-9% for '26e-'27eQ4 saw Ferronordic return to the well-known balancing act of a strong US vs. a soft German market. We raise US EBIT by 7-6% in '26-'27e on our extrapolation of Ferronordic's strong operational performance in the market alongside supportive macro data, such as the recent US ISM spiking to 52.6 in January. For Germany, we assume lower opex due to the company's extra savings measures in the quarter, but overall we lower EBIT estimates for the segment, arguing the extra cost cuts indicate the market will likely remain sluggish. We also lower overhead costs somewhat, and at the group-level, this amounts to positive EBIT revisions of 5-9% for '26e-'27e. Trading at 12-8x EV/EBIT vs. peers at 15-14xWe welcome the return to M&A after the quarter closed (although technically an asset acquisition). The near-term M&A potential remains constrained by the still high leverage, but the balance sheet is strengthening. We consider the strong US performance to be encouraging, while market headwinds in Germany remain a problem. The share is up 21% YTD, compared with +5% for OMXSGI, and it is currently trading at 12-8x '26e-'27e EV/EBIT, which can be compared to our distributor peer group at 15-14x. |