Embellence Group - Some challenges on the wall - ABG

Q2 report due on July 19 We expect sales of SEK 190m and adj. EBITA of 29m Share trading at EV/EBITA of 6.7x-4.8x in ‘22e-‘24e Market headwinds and tough comps Facing tough comps and cost inflation, we expect Embellence to continue showing slightly negative organic growth in Q2. While the company has a home improvement exposure, a category that looks to be notoriously weak at present, the B2B and end consumer exposure could prove supportive. We also believe that Hospitality has continued to perform well despite being only a small part of the business, with particular strength expected in Europe and RoW. On a less positive note, we fear that the e-commerce space has struggled in the ongoing re-opening phase and that the group’s online retailers have suffered. All in all, our forecast suggests -3% organic growth for net sales of SEK 190m in Q2. Furthermore, we expect a timing lag in the recent price increases could result in a slight short-term margin headwind. However, the recently acquired Artscape (adding some 20% to sales) comes with a positive mix effect of ~2pp. Consequently, we pencil in a margin expansion of 90bp y-o-y to 15.2% for an adj. EBITA of SEK 29m. Lower estimates given future uncertainties We note that Nordic renovation data have turned south in recent months. With low visibility in terms of consumer demand from H2’22e and onwards as well as longer lead times within B2B than B2C, we have taken a slightly more cautious view with regard to financial performance trimming our ’22e-‘24e sales estimates by ~2%. Finally, we adjust our ’22e adj. EBITA by -7% and ’23e-‘24e by -2% on continual gross margin pressure. Fair value range lowered to SEK 33-44 per share On the back of the aforementioned estimate changes, we lower our value range to SEK 33-44 (34-45) per share, corresponding to an EV/EBITA adj. range of 6.3x-8.1x on our FY’23 estimates. Läs mer på ABG Sundal Collier