In Q2, the main deviation from Factset consensus was the segment for external manufacturing, for which sales more than doubled y-o-y. The strong performance for Artscape in Q1 was also repeated in Q2, even without large one-off contracts, sales for the segment grew 18% organically. For other brands, organic growth seemed to be dictated by growth comparables, with flat underlying momentum. The gross margin outcome (-120bp y-o-y) was positive if we adjust for the very strong (internal) capacity utilisation in Q2'23, we believe. The SG&A ratio was 4pp better y-o-y, primarily on sales leverage. We extrapolate the strong external manufacturing sales, as we argue customer stickiness is high. We lower our SG&A ratio forecasts as well, as costs related to factory sales are rather fixed. In total, we raise sales for '24e-'26e by 2% and EBITA by 8-6%.
Growth slowdown in H2'24 but EBITA clearly outpacing
We believe the rest of the year could see growth slowing as comps become tougher. Therefore, we forecast organic growth of 5% for H2'24 compared to 10% in H1'24. We forecast gross margin improvements from lower input prices and higher capacity utilisation in the wallpaper factory (and possibly D2C growth, but this is not communicated explicitly other than for Cole & Son, where it is described as a contributor), meaning we forecast 15% EBITA growth for H2'24 (vs. 29% in H1).
Embellence is trading at 8x-6x '24e-'26e EV/EBITA
The Embellence share is trading at 8x-6x our updated '24e-'26e EV/EBITA. Our positive estimate revisions means we raise our fair value range to SEK 33-40 (30-35), corresponding to 8x-9x '24e EV/EBITA versus its own historical trading range of 5x-9x NTM EBITA. The current share price implies a 30% accumulated FCF (after IFRS payments) yield in '24e-'26e.
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