While sales were a touch below our expectations, we have increased our EBIT estimates by 15% for 2021 and 7% for 2022-2023 because of a higher gross margin assumption. We know that the company has been without a low-margin packaging order this year, which is likely to affect gross margins in ‘22e-‘23e, but the leverage the company is experiencing is likely to be an effect that is stronger for longer. While we believe that the company over time is likely to see lower gross margins due to the RFID business, we currently see few signs of a return to the 43-44% margin of ’18-19 in the short term. However, we acknowledge that the cost base could continue to increase to normalised levels. As we have assumed a more normalised gross margin for ‘22e as well as some other external costs returning, we continue to cautiously pencil in a margin decline in 2022e, but continue to raise the base.
Valuation – trading at ‘21e 10x EV/EBIT
On our updated estimates, Nilörngruppen is trading at an EV/EBIT of ~10x ‘21e-23e. While being significantly larger, the company’s biggest competitor, Avery Dennison, is currently trading at a ‘21e-‘22e EV/EBIT of 18-17x.
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