Investment Research Jernhusen Q3 14: improved earnings Jernhusen presented a good quarterly report for Q3. Rental and operating income increased both sequentially and year-on-year with further cost reductions, not least thanks to higher energy efficiency. The balance sheet remains quite strong and solidity improved somewhat despite a fairly high current capex rate. This report supports our view of Jernhusen as an A- credit with stable outlook. Good margins on higher rental income and lower costs Rental income continued to increase in Q3 both as reported and on a like-for-like basis. At the same time property management costs declined somewhat, leading to an improved operating income. The EBITDA-margin (operating income before property value changes) amounted to 84%, up from 73% in Q3-13. The vacancy rate improved somewhat as Depots utilisation increased. Capex at a stable level and will likely stay there short term Cash flow before changes in working capital was up y/y, while net debt continued to increase sequentially due to investments in mainly the Depots segment thanks to recent new contract tailwinds and the Stadsprojekt segment as construction of new combined regional train station and hotel in Stockholm city is ramped up. LTV amounted to 51%, down about 1p.p. q/q. Interest coverage improved to 3.6x, a sequential increase of.7x. Overview () Overview () Q3 13 Q2 14 Q3 14 y/y q/q Rental income 171 185 19 11% 3% EBITDA 19 125 148 35% 18% EBIT 113 152 141 25% -7% Int. Expense -49-43 -15-7% -65% FFO 7 78 111 59% 42% Net income 56 62 51-9% -18% Capex 29 252 267 28% 6% Total debt 5 8 5 999 6 6 4% % Net debt 5 614 5 759 5 959 6% 3% Equity 4 669 5 58 5 19 9% 1% Ratios Q3 13 Q2 14 Q3 14 EBITDA-margin (%) 64% 68% 78% Gross op interest cov (x) 2.2x 2.9x 3.6x LTM FFO / net debt (%) 5% 5% 5% LTM RCF / net debt (%) 3% 5% 5% Net debt/ltm EBITDA (x) 12.8x 13.2x 12.6x LTV (%) 52% 53% 51% 24 October 214 Facts Sector: Industrials; Real Estate Corporate ticker: JERNAB Equity ticker: Private Equity book value: SEK5.1bn Ratings: Rating agencies: Not rated Danske Bank Markets: Issuer rating: A- / S Senior unsecured: A- / S 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 Property metrics 6% 55% 5% 45% 4% Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 9% 8% 7% 6% 5% 4% 3% 2% 1% % Net sales EBITDA EBITDA-margin (rhs) Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 LTV (lhs) Gross interest coverage ratio (rhs) 4.x 3.5x 3.x 2.5x 2.x 1.5x 1.x.5x.x Important disclosures and certifications are contained from page 4 of this report. www.danskeresearch.com
Divisional quarterly overview () Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Stationer Net sales 142 17 148 158 157 EBITDA 54 74 57 7 75 EBITDA margin 38% 44% 38% 44% 48% Stadsprojekt Net sales 7 8 7 7 7 EBITDA 3 1 1 1 EBITDA margin 41% 16% -1% 19% 8% Depåer Net sales 11 93 119 113 18 EBITDA 57 55 5 59 62 EBITDA margin 56% 59% 42% 52% 58% Godsterminaler Net sales 11 9 14 16 18 EBITDA 4 7 8 11 EBITDA margin 35% 5% 51% 53% 61% 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. In 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-q2 14: 41.6%). 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 to Jernhusen. Combined with a stand-alone credit profile of BBB, we view Jernhusen as a A- credit with stable outlook. Credit metrics 7 6 5 4 3 2 1 Sales per business segment 35 3 25 2 15 1 5 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 11 11 12 12 12 12 13 13 13 13 14 14 14 Stationer Stadsprojekt Depåer Godsterminaler EBITDA per business segment 14.x 13.5x 13.x 12.5x 12.x 11.5x 11.x 1.5x Adj net debt Equity Adj net debt/ltm EBITDA (rhs) 6% 37% 3% 54% 18 16 14 7% 12 1 42% 8 % 6 4 51% 2-2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 11 11 12 12 12 12 13 13 13 13 14 14 14 Stationer Stadsprojekt Depåer Godsterminaler 2 24 October 214 www.danskeresearch.com
Fixed Income Credit Research Thomas Hovard Head of Credit Research (+45) 45 12 85 5 hova@danskebank.com Louis Landeman TMT, Industrials (+46) 8 568 8524 llan@danskebank.com Åse Haagensen High Yield, Industrials (+47) 22 86 13 22 ha@danskebank.com Mads Rosendal Industrials, Pulp & Paper (+45) 45 14 88 79 madro@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 Lars Holm Financials (+45) 45 12 8 41 laho@danskebank.dk Gabriel Bergin Strategy, Industrials (+46) 8 568 862 gabe@danskebank.com Kasper From Larsen High Yield, TMT (+45) 45 12 8 47 kasla@danskebank.com Bjørn Kristian Røed Shipping (+47) 85 4 7 72 bred@danskebank.com Nils Henrik Aspeli Real Estate, Industrials (+47) 8548433 nas@danskebank.com Wiveca Swarting Real Estate, Construction (+46) 8 568 8617 wsw@danskebank.com Sondre Dale Stormyr Offshore rigs (+47) 85 4 7 7 sost@danskebank.com Henrik René Andresen Credit Portfolios (+45) 45 13 33 27 hena@danskebank.com Øyvind Mossige Oil services (+47) 85 4 54 91 omss@danskebank.com Find the latest Credit Research Danske Bank Markets: http://www.danskebank.com/danskemarketsresearch Bloomberg: DNSK<GO> 3 24 October 214 www.danskeresearch.com
Disclosures 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 that 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 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. 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 on 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. 4 24 October 214 www.danskeresearch.com
Expected updates Credit Update: This research report will be updated on a quarterly basis following the quarterly results statements from Jernhusen. Scandi Handbook: This research report will be updated bi-annually, usually in April and October. See the front page of this research report for the date of first publication. Recommendation structure Investment recommendations are based on the expected development in the credit profile as well as relative value compared with the sector and peers. As at 3 September 214 Danske Bank Markets had investment recommendations on 49 corporate bond issuers. The distribution of recommendations is represented in the distribution of recommendations column below. The proportion of issuers corresponding to each of the recommendation categories above to which Danske Bank provided investment banking services in the previous 12 months ending 3 September 214 is shown below. Rating Anticipated performance Time horizon Distribution of recommendations Investment banking relationships Buy Outperformance relative to peer group 3 months 33% 5% Hold Performance in line with peer group 3 months 53% 42% Sell Underperformance relative to peer group 3 months 14% 14% Changes in recommendation within past 12 months: Date New recommendation Old recommendation 28 July 214 Not Rated N/A 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 that Danske Bank considers to be reliable. While 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 judgement 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 this 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. 5 24 October 214 www.danskeresearch.com
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