Humble Group: Set for an exciting Q4 - ABG

‘23e-‘24e EBITA estimates up 5% Working capital build-up sets high Q4 expectations Share trading at EV/EBITA ‘23e-‘24e 9-7x Key takes from the Q3 report The Q3 report surprised positively with respect to both the top line and profitability, with sales of SEK 1,354m and adj. EBITA of SEK 125m. Importantly, the Q3 gross margin of 30.8% was stronger than we had anticipated (+2.3pp vs. ABGSCe 28.5%), indicating that Humble’s market position allows it to transfer a meaningful portion of its incremental cost increases onto its customers. On the financing side, the company secured an RCF of SEK 650m (250m higher than the previous RCF), and we note that it also tapped its bond framework for an additional SEK 300m in bond financing. While this solves near-term hurdles and consolidates debt on a group level, we anticipate that Humble will become even more selective in its M&A agenda. Outlook: all eyes on cash flow and gross margin in Q4 With a strong build-up of working capital comes an expectation of a strong subsequent quarter. We anticipate a working capital release of approx. SEK 120m, which should contribute to a significant portion of the operating cash flow in Q4 that we estimate at SEK 220m. Gross margins will likely continue to see some pressure versus comps due to the consolidation of Privab, which earns gross margins in the mid-teens. Notwithstanding that, we believe that some additional gross margin pressure will come from cost inflation, and therefore anticipate a Q4 gross margin of 30% (down 1.9p.p from 31.9%). Trading at 9-7x EV/EBITA ‘23e-‘24e The share is down 65% YTD, and is currently trading at ‘23e-‘24e EV/EBITA 9-7x based on our revised estimates. Läs mer på ABG Sundal Collier