Q2 sales decline 2.4%, margin improved 1.0pp

Q2 EBIT miss of -19%. ‘18e-‘19e cut by 12 and 9%

We still expect a recovery, but on lower levels

Margin recovery, but lower than expected
Q2'18 revealed a margin recovery y-o-y, with an EBIT margin of 6.7% (5.7% in Q2'17). We had 1.2pp higher expectations on margins (7.9%) and 5% higher expectations on sales, however, resulting in a 19% EBIT miss. Our expectation for an ongoing recovery is not drastically altered by the report, but we now anticipate that it will be slower. We are adjusting downwards our Q3'18e EBIT margin to 10.9% and Q4’18e to 14.8% (from 12.9% and 16.5%). That still implies a y-o-y margin expansion of 7.1pp and 1.7pp, respectively. We are also downgrading our expectations for organic growth, but FX (NOK/SEK) support will leave Q3’18e and Q4’18e with positive total sales growth. On the flipside, we believe that FX headwinds in COGS (EUR and USD) has been, and is, dampening margins. The majority of sourcing is in USD and EUR, and full coverage from price adjustments should be hard to achieve.

H2 important, gradual improvements from next year
During the last five years, 60% of FY EBIT was generated in H2, with 39% in Q4. For ‘18e we expect 64% of full-year EBIT to come from H2’18e. We forecast ‘18e sales to decline by 0.6%, with an EBIT margin of 11.2%, followed by a pickup in ‘19e-‘20e with low single-digit sales growth and margins of 12.5%. This implies a normalized margin significantly lower than the ’13-’16 average of 14.5% (range 13.0-15.8%), but still higher than ’17’s 8.9%. Malmbergs has for a long time maintained a margin higher than its peers, due to reduced intermediaries and own-labelled products etc. There are indications that the recent decline relates to a narrow assortment of products outside the Nordics (Germany). Intensified competition could also be a factor, we believe.

Estimates down, large valuation gap to peers
Estimate changes: ’18-19e sales -2% and -4%, ‘18e-‘19e EBIT -12% and -9%. The v