The Q2 report was strong in terms of both sales and earnings, which were 5% and 9% above our estimates, respectively. Y-o-y org. growth was 3pp below our estimate of 16%, but overall the acquired businesses more than compensated for this difference. The gross margin miss of ~60bps vs. our estimate of 29.9% can mostly be explained by the consolidation of Privab. As the company is now implementing a group-wide pricing focus, we would expect a gross margin recovery going forward. Cash flow from operations was strong, with a third consecutive beat, and that gives us further confidence in the company's cash flow-generating ability.
Outlook and estimate changes
Following the report, we make minor estimate changes as we increase '23e-'25e sales and EBITA by 1%. During the webcast, the company highlighted that the price/volume-mix contribution to organic growth was weighted 70/30 last year, and that the price component is somewhat smaller now. This suggests that the volume portion should grow at a mid-to-high single-digit rate, and that low-to-mid single-digit price increases are likely to bridge the organic growth to a low double-digit level. As the capital structure becomes less debt-heavy ('23e ND/PF EBITDA of 1.9x), we are more optimistic about the company's reinvestment opportunities and potential to generate cash flow. However, it is important to note that we have not included the potential disposal of the real estate assets in our estimates, as the announced deal has not yet closed. Based on the report and the streak of strong cash flow generation, we are increasingly confident in the group's long-term prospects.
Implied valuation
Based on our revised estimates, the company is trading at '24e-'25e lease adj. FCF yields of ~4-11%, in the context of '23e/'24e/'25e ND/PF EBITDA of 1.9x/1.5x/1.0x.
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