Lifted COVID-19 restrictions boost new sales
Q2: Net sales +6% y-o-y, EBIT margin of 17.2% (20.4%)
Generic reported Q2 net sales of SEK 31.3m (29.6), representing a slower growth rate than we have become accustomed to. A combination of tough comparables alongside a slightly lower growth rate from existing customer explains the lower growth rate. Net sales were 4% behind ABGSCe, a rare miss from Generic. EBIT was SEK 5.4m (6.0m) for a margin of 17.2% (20.4%). We expected a lower EBIT margin based on a need to strengthen the organisation with additional employees, but still forecasted 17.7%. Looking forward, the company thinks it will benefit from lifted COVID-19 restrictions given that trade shows, events and physical meetings are important for its ability to sign new customers. We think this is a viable explanation and at least partly explains the relative paucity of new deals during the pandemic.
Still well-positioned, but negative revisions to forecast
We are not that worried about the Q2 miss, as we think digital communication will be increasingly important for a lot of companies in the years to come. In Q2’21, Generic onboarded the Swedish Social Insurance Agency as a new customer, driving additional sales. The company also benefitted from additional messaging volumes during 2021 which is why it may take a quarter or two to reach back to +10% sales growth, but we think the possibility is still there in the medium-term. However, we do lower our sales estimates by 2-4% for ’22-‘24e, respectively, and EBIT for the same period by 4-5%.
Trading below its own historical valuation
The Q2 shortfall did not go unnoticed by the market with the stock down 18% on the day of the report and -32% over the last month. We note that the valuation multiples have decreased significantly and that Generic is now trading more than 50% below its own two-year historical multiples for EV/EBIT NTM.
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