A margin lift we feel comfortable extrapolating
Nolato's Q1 EBITA came in 21% above FactSet consensus and 22% above our expectations, partly due to better-than-expected sales but more so due to an impressive margin lift of 1.9pp y-o-y. The improved margin was driven by a favourable product mix, largely thanks to a recovery in high-margin in vitro diagnostics sales in Medical, combined with realised cost cuts in Engineering. We do not expect either of these factors to revert, and therefore now see strong potential in margins, and as such we would argue that the higher Q1 margin can be extrapolated. Free cash flow was negative due to both seasonal working capital tie-up and high capex, but we think the report was strong despite this.
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