Cons. likely to cut ‘22e-‘23e adj. EBITDA by 5-10%
Q2 results
Sales SEK 383m (-1.8% vs ABGSCe 390m), EBITDA SEK 59m (-7.3% vs ABGSCe 64m), adj. EBITDA SEK 59m (-7.3% vs ABGSCe 64m), EBIT SEK 21m (-26.3% vs ABGSCe 29m).
Q2 thoughts
Sales grew 1% y-o-y, which mainly stemmed from acquisitive growth as we calculate an organic growth of -1% y-o-y. After five consecutive quarters with sequentially expanding EBITDA margins, the Q2 EBITDA margin of 15.5% shrank from 16.4% in Q1 and came in below our forecast at 16.4%. Weaker sales combined with an intake of margin-dilutive customers (due to customer discounts) explained the margin shortfall. Nonetheless, we find it encouraging to see a continuation in the positive net customer intake, which was +3,000 q-o-q in Q2 (vs. ABGSCe 2,500). The gross margin of 35.0% was slightly down from Q1 at 35.7%, both suffering from the margin-dilutive acquisition and from customer discounts. We know from history that Bredband2 occasionally prioritises growth over short-term gross margins, which we also see in this quarter. Furthermore, Bredband2 seeks to emphasise its sales activities in H2 (cross selling of security solutions, etc.), which is well in line with our previous expectations.
Valuation and estimate changes
Bredband2’s share is -14% YTD and is trading at 7-6x ‘22e-’23e EV/EBITDA on our unrevised estimates. Based on the Q2 report alone, we believe that consensus will lower its sales ‘22e-‘23e sales forecasts by ~2%, which together with lower gross margin assumptions, could result in 5-10% cuts on ‘22e-’23e adj. EBITDA.
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