Sales took a hit on lower fiber to the home…

…but Alcadon has much more in its arsenal

A softer ’18e followed by a pickup

Lower sales reveal strong core business
Sales of SEK 134m (136m in Q2’17) were 14% lower than ABGSCe at SEK 156m. This was sharply lower than the y-o-y growth in the range of 17-133% (organic 12-44%) in the previous four quarters. However, we note the sales decline 1) was isolated to fiber to the home (FTTH) and 2) was affected by harsh comps. The adj. EBIT margin was 11.6% (12.5% in Q1’17) vs. ABGSCe at 12.7%. Despite lower EBIT than expected, margin resilience on the volume decline (-10% organic) was surprisingly strong. That the operational leverage did not take a greater toll is key for the coming quarter and reveals strong earnings power in the core business, we believe. This is demonstrated in the gross margin of 28.5% (26.7% in Q2’17) vs. ABGSCe at 27.2%. According to management, customers are agile in switching business activities to other areas of fiber use and Alcadon’s dependence on FTTH should not be overemphasised.

H2’18e sales down but what is around the corner?
In H2’18 we expect sales growth of 5-11% in Q3’18-Q4’18 (-14% and -3% organic). On the flip side, we raise the gross margin for Q3’18e due to a favourable product mix, but expect a softer delta in the gross margin improvement in Q4’18 partly on the back of a FTTH recoup (still tough comps). The FTTH structural trend remains and we believe that it is a matter of postponed roll-out followed by pent up demand. More importantly, Alcadon should benefit from its core assortment, which is much more than FTTH, and the upcoming roll-out of 5G FTTA (fiber to the antenna) and data centers.

’19e-’20e organic sales growth of 3-5% and margin uptick
For ’19 we estimate sales growth of 9.8% (3% organic), still factoring in lower residential construction activity, and adj. EBIT growth of 11%. For ’20 we expect sales growth of 5%, all organic, and EBIT growth of 6%, with the possibility of acquisitio
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