Investment Research 24 October 213 Jernhusen Q3 13: higher income, but costs up as well Jernhusen s rental income was lower in Q3 13 due to changes in the property portfolio. On a like-for-like basis, rental income increased somewhat but operating and net income decreased y/y. The Depots business performed strongly, while margins in the Stations segment weakened. Indebtedness increased sequentially as investment programmes continued. We continue to see Jernhusen as an A- credit with stable outlook. Like-for-like income increased, but so did the cost base In Q3 13, Jernhusen again reported lower group rental income y/y due to changes in the composition of the property portfolio in 212. On a LFL basis, rental income increased y/y but both operating income and EBIT decreased. The Depots segment delivered on investments in new and existing facilities and the segment s profitability improved y/y. Income before taxes was significantly better than last year, due to positive valuation changes in Jernhusen s interest rate derivatives, while net income was down 72% y/y as a positive tax effect was booked in Q3 12. Higher indebtedness due to investments Cash flow was weak in Q3 both sequentially and with respect to seasonal effects, as cash flow from operations before changes in working capital was down 31% from the same period in the previous year. Capex increased somewhat y/y as Jernhusen continues with investments and new projects within Stadsprojekt. Net debt increased slightly q/q, which together with the fairly weak earnings weighed on metrics such as net debt to LTM EBITDA. LTV and interest coverage ratios also deteriorated sequentially. Overview () Q3 12 Q2 13 Q3 13 y/y q/q Rental income 191 23 171-1% -16% EBITDA 135 136 19-19% -2% EBIT 67 78 71 6% -9% Int. Expense -41-4 -49 2% 24% FFO 12 72 7-31% -3% Net income 21 68 56-72% -18% Capex 54 339 29 29% -38% Total debt 5 61 5 599 5 8 15% 4% Net debt 5 53 5 491 5 614 11% 2% Equity 4 493 4 611 4 669 4% 1% Ratios Q3 12 Q2 13 Q3 13 EBITDA-margin (%) 71% 67% 64% Gross op. interest cov. (x) 3.3x 3.4x 2.2x LTM FFO / net debt (%) 6% 5% 5% LTM RCF / net debt (%) 4% 4% 3% Net debt/ltm EBITDA (x) 1.7x 11.9x 12.8x LTV (%) 54% 54% 55% Facts Sector: Industrials; Real Estate Corporate ticker: JERNAB Equity ticker: 953995Z SS Market cap: Not listed Ratings: S&P rating: NR Moody s rating: NR Fitch rating: NR Danske Bank Markets: A- Analyst: Gabriel Bergin gabriel.bergin@danskebank.com +46 ()8 568 86 2 Louis Landeman louis.landeman@danskebank.com +46 ()8 568 85 24 Profitability 25 2 15 1 5 Credit metrics 8 7 6 5 4 3 2 1 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 9% 8% 7% 6% 5% 4% 3% 2% 1% % Net sales EBITDA EBITDA-margin (rhs) Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 62% 6% 58% 56% 54% 52% 5% 48% Adj net debt Equity Adj net debt/ltm EBITDA (rhs) Important certifications and disclosures are contained from page 5.
Divisional quarterly overview () Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Stations Net sales 147 145 147 165 142 EBITDA 65 57 57 69 54 EBITDA margin 44% 39% 39% 42% 38% Stadsprojekt Net sales 17 17 1 7 7 EBITDA 1 12 8 3 EBITDA margin 57% 69% -1% 119% 41% Depots Net sales 96 138 114 15 11 EBITDA 55 64 38 51 57 EBITDA margin 57% 46% 33% 49% 56% Freight terminal Net sales 6 18 8 9 11 EBITDA 3 3 3 4 EBITDA margin 5% 18% 37% 2% 35% Recommendation Jernhusen s business is mainly split between property that can be characterised as more traditional commercial real estate and more specialised property used for train maintenance. Jernhusen s commercial real estate portfolio is concentrated in high quality properties in prime locations in Sweden s biggest cities. Furthermore, Jernhusen is the market leader in the market for train maintenance locations. Train traffic, while volatile, is increasing, which should support Jernhusen s credit profile in the long term. Over the past few years Jernhusen s margins have been fairly stable and rental income has increased yearly since 27. Solidity has been declining somewhat in recent years and was on the company s stated lower bound of 35% at year-end 211 but rebounded to 43% after the divestment of a major asset in Stockholm in Q3 12 (end-q3 13: 4.6%). We see the financial profile as adequate but note that credit metrics can be volatile as the company invests or divests major projects. The 1% government ownership of Jernhusen means it can be classified as a government-related entity, according to S&P s criteria. We believe there is a Moderately High likelihood of extraordinary government support from the Swedish government. Combined with a stand-alone credit profile of BBB, we view Jernhusen as an A- credit with stable outlook. See the next page for current pricing of Jernhusen s bonds. Property metrics 65% 6% 55% 5% 45% Sales per business segment 35 3 25 2 15 1 5 Q4 1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 11 11 11 11 12 12 12 12 13 13 13 Stationer Stadsprojekt Depåer Godsterminaler EBITDA per business segment 18 16 14 12 1 8 6 4 2 Q4 1 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 LTV (rhs) 4.x 3.5x 3.x 2.5x 2.x 1.5x 1.x.5x.x Gross interest coverage ratio (rhs) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 11 11 11 11 12 12 12 12 13 13 13 Stationer Stadsprojekt Depåer Godsterminaler 4% 39% 3% 54% 3% 48% 2% 46% 2 24 October 213
Peer pricing 12 1 8 6 4 2 213-1 214-1 215-1 216-1 217-1 218-1 219-1 Akademiska Hus Hemso Fastighets Hufvudstdn Fastg Jernhusen Ab Lejonfast Ab Postnord Ab Rikshem Ab Swedavia Ab Uppsalahem Ab Vasakronan Ab Source: Bloomberg, Danske Bank Markets 3 24 October 213
Fixed Income Credit Research Thomas Hovard Head of Credit Research (+45) 45 12 85 5 hova@danskebank.com Louis Landeman TMT (+46) 8 568 8524 llan@danskebank.com Åse Haagensen High Yield (+47) 22 86 13 22 ha@danskebank.com Henrik Arnt Financials, EUR Strategy (+45) 45 12 85 4 heand@danskebank.com Jakob Magnussen Utilities, Energy (+45) 45 12 85 3 jakja@danskebank.com Brian Børsting Industrials (+45) 45 12 85 19 brbr@danskebank.com Asbjørn Purup Andersen Portfolio Strategy (+45) 45 14 88 86 apu@danskebank.com Gabriel Bergin Industrials, SEK Strategy (+46) 8 568 862 gabe@danskebank.com Kasper From Larsen High Yield, Industrials (+45) 45 12 8 47 kasla@danskebank.com Bjørn Kristian Røed Shipping (Equity & Credit) (+47) 85 4 7 72 bred@danskebank.com Mads Rosendal Industrials, Pulp & Paper (+45) 45 14 88 79 madro@danskebank.com Nils Henrik Aspeli Real Estate (+47) 85 4 84 33 nas@danskebank.com Wiveca Swarting Real Estate, Construction (+46) 8 568 8617 wsw@danskebank.com Find the latest Credit Research Danske Bank Markets: http://www.danskebank.com/danskemarketsresearch Bloomberg: DRCR<GO> 4 24 October 213
Disclosure This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S ( Danske Bank ). The authors of the research report are Gabriel Bergin, Analyst and Louis Landeman, Analyst. Analyst certification Each research analyst responsible for the content of this research report certifies that the views expressed in the research report accurately reflect the research analyst s personal view about the financial instruments and issuers covered by the research report. Each responsible research analyst further certifies that no part of the compensation of the research analyst was, is or will be, directly or indirectly, related to the specific recommendations expressed in the research report. Regulation Danske Bank is authorised and subject to regulation by the Danish Financial Supervisory Authority and is subject to the rules and regulation of the relevant regulators in all other jurisdictions where it conducts business. Danske Bank is subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority (UK). Details on the extent of the regulation by the Financial Conduct Authority and the Prudential Regulation Authority are available from Danske Bank on request. The research reports of Danske Bank are prepared in accordance with the Danish Society of Financial Analysts rules of ethics and the recommendations of the Danish Securities Dealers Association. Conflicts of interest Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of highquality research based on research objectivity and independence. These procedures are documented in Danske Bank s research policies. Employees within Danske Bank s Research Departments have been instructed that any request that might impair the objectivity and independence of research shall be referred to Research Management and the Compliance Department. Danske Bank s Research Departments are organised independently from and do not report to other business areas within Danske Bank. Research analysts are remunerated in part based on the overall profitability of Danske Bank, which includes investment banking revenues, but do not receive bonuses or other remuneration linked to specific corporate finance or debt capital transactions. Danske Bank, its affiliates, subsidiaries and staff may perform services for or solicit business from Jernhusen and may hold long or short positions in, or otherwise be interested in, the financial instruments mentioned in this research report. The Equity and Corporate Bonds analysts of Danske Bank and undertakings with which the Equity and Corporate Bonds analysts have close links are, however, not permitted to invest in financial instruments which are covered by the relevant Equity or Corporate Bonds analyst or the research sector to which the analyst is linked. Danske Bank, its affiliates and subsidiaries are engaged in commercial banking, securities underwriting, dealing, trading, brokerage, investment management, investment banking, custody and other financial services activities, may be a lender to Jernhusen, and have whatever rights as are available to a creditor under applicable law and the applicable loan and credit agreements. At any time, Danske Bank, its affiliates and subsidiaries may have credit or other information regarding Jernhusen that is not available to or may not be used by the personnel responsible for the preparation of this report, which might affect the analysis and opinions expressed in this research report. Within the previous 12 months Danske Bank has been Lead Manager of a public offer of credit bonds for Jernhusen AB. As an investment bank, Danske Bank, its affiliates and subsidiaries provide a variety of financial services, including investment banking services. It is possible that Danske Bank and/or its affiliates and/or its subsidiaries might seek to become engaged to provide such services to Jernhusen in the next three months Danske Bank has made no agreement with Jernhusen to write this research report. No parts of this research report have been disclosed to Jernhusen. No recommendations or opinions have been disclosed to Jernhusen and no amendments have accordingly been made to the same before dissemination of the research report. Financial models and/or methodology used in this research report Calculations and presentations in this research report are based on standard econometric tools and methodology as well as publicly available statistics for each individual security, issuer and/or country. Documentation can be obtained from the authors upon request. Risk warning Major risks connected with recommendations or opinions in this research report, including a sensitivity analysis of relevant assumptions, are stated throughout the text. 5 24 October 213
Expected updates Credit Update: This research report will be updated on a quarterly basis following the quarterly result statements from Jernhusen. Scandi Handbook: This research report will be updated biannually, usually in October and April. See the front page of this research report for the date of first publication. General Disclaimer This research has been prepared by Danske Bank Markets (a division of Danske Bank A/S). It is provided for informational purposes only. It does not constitute or form part of, and shall under no circumstances be considered as, an offer to sell or a solicitation of an offer to purchase or sell any relevant financial instruments (i.e. financial instruments mentioned herein or other financial instruments of any issuer mentioned herein and/or options, warrants, rights or other interests with respect to any such financial instruments) ("Relevant Financial Instruments"). The research report has been prepared independently and solely on the basis of publicly available information which Danske Bank considers to be reliable. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness, and Danske Bank, its affiliates and subsidiaries accept no liability whatsoever for any direct or consequential loss, including without limitation any loss of profits, arising from reliance on this research report. The opinions expressed herein are the opinions of the research analysts responsible for the research report and reflect their judgment as of the date hereof. These opinions are subject to change, and Danske Bank does not undertake to notify any recipient of this research report of any such change nor of any other changes related to the information provided in the research report. This research report is not intended for retail customers in the United Kingdom or the United States. This research report is protected by copyright and is intended solely for the designated addressee. It may not be reproduced or distributed, in whole or in part, by any recipient for any purpose without Danske Bank s prior written consent. Disclaimer related to distribution in the United States This research report is distributed in the United States by Danske Markets Inc., a U.S. registered broker-dealer and subsidiary of Danske Bank, pursuant to SEC Rule 15a-6 and related interpretations issued by the U.S. Securities and Exchange Commission. The research report is intended for distribution in the United States solely to "U.S. institutional investors" as defined in SEC Rule 15a-6. Danske Markets Inc. accepts responsibility for this research report in connection with distribution in the United States solely to U.S. institutional investors. Danske Bank is not subject to U.S. rules with regard to the preparation of research reports and the independence of research analysts. In addition, the research analysts of Danske Bank who have prepared this research report are not registered or qualified as research analysts with the NYSE or FINRA, but satisfy the applicable requirements of a non-u.s. jurisdiction. Any U.S. investor recipient of this research report who wishes to purchase or sell any Relevant Financial Instrument may do so only by contacting Danske Markets Inc. directly and should be aware that investing in non- U.S. financial instruments may entail certain risks. Financial instruments of non-u.s. issuers may not be registered with the U.S. Securities and Exchange Commission and may not be subject to the reporting and auditing standards of the U.S. Securities and Exchange Commission. 6 24 October 213