GARO delivered sales of SEK 350m in Q2’22, which was -4% compared to our forecast of SEK 366m. Group EBIT came in at SEK 40m, 35% below our SEK 61m estimate. The EBIT margin was disappointing at 11.3% (16.1% in Q2’21), below ABGSCe at 16.6%. The main deviation was in E-mobility, which had net sales of SEK 103m, 11% below ABGSCe. Sales was held back by significant component shortages, which (combined with cost inflation and growth investments) led to a divisional margin of 2.9% vs. ABGSCe of 18%. The Electrification business had net sales of SEK 247m (-1% vs. ABGSCe at SEK 250m), while EBIT was roughly in line at SEK 37m (ABGSCe SEK 40m). Despite the weaker EBIT, operating cash flow was good at SEK 34m, on good working capital management. The balance sheet is strong, at a small net debt of SEK 52m.
Component shortage expected to improve in H2 The underlying demand for EV chargers remains good and the component shortages are temporary, in our view. The company expects the component supply to improve in H2 vs. Q2 and guides for y-o-y growth for E-Mobility, after declining by 13% in Q2. We expect the lack of components to hold back sales significantly also in Q3e, before improving significantly in Q4e. Garo’s sales should also see support from a secured framework agreement with a heavy electric vehicle OEM, where deliveries are planned to ramp up from late Q3 onwards. All in all, we have lowered ’22e EBIT by 17%, with smaller adjustments to our ’23e-’24e forecasts.
We maintain our SEK 170-220 fair value range Despite the temporary component shortages, we believe that GARO is well positioned to see strong growth in the E-mobility segment over the mid- to long-term. We reiterate our fair value range of SEK 170-220 per share.
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