NRC GROUP Deprecation hits EPS forecasts NRC reported revenues and EBITDA in line with its Q4 profit warning and our forecasts, but suggested no dividend for 2018. The market continues to look strong, with high growth in Nordic rail investments, and this looks to be translating into orders, with NOK630m announced so far in Q1. However, we have cut our forecasts on higher depreciation and amortisation due to depreciation of leases. We have cut our target price to NOK75 (81), while we reiterate our BUY.
Q4 as guided, but no DPS for 2018. NRC reported revenues of NOK971m and an EBITDA of NOK-20m, post a NOK60m restructuring charge in Sweden, and NOK-14m in M&A costs in Q4, in line with the profit warning. The order backlog was NOK6.7bn, also in line. However, deprecation and financing costs were higher than we expected, thus EPS fell shy. NRC did not suggest a dividend for 2018; we had NOK2/share as a base case, but feared a binary risk.
Market is turning. While 2018 proved a slow year in Sweden, the 2019 national budget indicates a 26% increase YOY in direct investment in rail in Sweden and another 17% YOY hike in 2020e. Norway’s national budget implies a 12.4% increase in rail spending in 2019. We forecast the Finnish market up 8% YOY based on growth in light rail investment. We see solid market growth for the company, and expect it to execute well.
Non-cash cuts to forecasts, BUY reiterated. We have updated our forecast for the new updated seasonal pattern in NRC based on updated quarterly figures including VR Track. Our revenue and EBITDA forecast changes are very limited. However, as we have also updated for the higher depreciation seen in Q4 – now at NOK116m/year for the ‘old’ NRC and VR-Track, from EUR11m/year in Q1, as financial lease depreciation was higher than we expected – and including amortisation on company guidance, we have cut our 2019 EPS forecast by 26%. We have also lowered our capex forecast based on company guidance. We have cut our target price to NOK75 (81), but we reiterate our BUY recommendation on still-attractive P/E adj. valuation.