We expect Q4 to be affected by the COVID restrictions that were reintroduced in the important Christmas shopping season, which markedly slowed retail activity during the quarter. Despite increased headwinds and tough comps (Q4’20 had organic growth of 7%), we still expect a relatively strong Q4’21, with organic growth of 4%. Higher prices should explain most of the growth, as volumes should at best be on a par with last year for external distribution, while own brands should continue to grow. However, there should be notable headwinds for the gross margin, as freight rates are up ~120% y-o-y, and as DistIT is reliant on importing a significant share of its goods from Asia. It is unlikely that it has been able to offset this cost increase yet. We expect the gross margin to decline 250bp y-o-y, to 21% in Q4’21. With the high operating leverage of DistIT’s business model, we make a large 26% cut to Q4’21e EBIT.
Sales and GM cut, own brands remain the key driver
Given the above, we cut Q4’21e sales by 5%. We also lower the gross margin from 23% to 21%, resulting in a 13% lower gross profit. We expect Q4’21 EBIT of SEK 51m, for an EBIT margin of 6.3%. Looking at 2022, we expect a continued focus on expanding its own brands across all the segments, which should lift gross margins through an improved sales mix. Also, we expect EFUEL to expand further in Europe, along with EMV, which should drive higher organic growth for ‘22e.
Share up 110% LYTD, multiples only slightly higher
We expect the EPS to grow 127% y-o-y in ‘22 after a decline in ‘21. DistIT’s share was up 140% in 2021. On our new estimates, the share is currently trading at an EV/EBIT of 14x-11x in ’22e-’23e, which is slightly above the 5Y historical average of 8.5x EV/EBIT, but nevertheless on improved growth prospects.
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