EBIT beat of 10%, actions for continued growth

Acquisition growth engine ignited

32% discount to peers on EV/EBIT 7.4x

An assumed challenging Q3 – proved wrong
Despite an unseasonably warm Q3 and some disturbance in the Grolls branch, Swedol grew sales by 4.2% (2.4% LFL). The EBIT beat was 10% vs. ABGSCe on an adj. margin of 10.9% (10.2) and EBIT growth of 12%. We expected input costs and FX to burden the GM, but in contrast to peers, this was well offset by a positive product mix and effective price hikes. Our take on the quarter is positive, not in the least from a relative perspective, but the impact on estimates is minor. We leave the gross margin unchanged and slightly raise opex for Q4 as an initial consequence of the consolidation of Duunivaruste and Metaplan.

Many ingredients to navigate well through 2019 and beyond
Looking into 2019, about which the stock market appears cautious, Swedol has a solid setup to perform well with launches of integrated stores (sales synergies), a strong costumer offering, and product launches combined with increased key account managers to leverage sales. We assess Swedol’s exposure to the Swedish construction market at 30%, of which we assume not more than ~8% relates to residential new-building. We factor in a ’19e scenario of 1.7% organic growth: -0.6% growth from construction related customers and 3% from other segments. The recent acquisitions in Finland lift sales by SEK +113m (+4%). We believe that the growth engine of small/mid-size or bolt-on acquisitions has just been started. To put it in perspective, we are still 25% (SEK 1.2bn) below the company’s ’20 target of SEK 5.0bn in sales, which calls for acquisitions.

Trading below peers with 11% EBIT CAGR ’17-’20e
The shares trade at 7.4x EV/EBIT ’19e (P/E 9.5x and FCF yield 7.4%), which implies a discount to peers of 32%. This is on a sales and EBIT CAGR ’17-‘20e of 7% and 11%, respectively. We expect ’18-’19 sales growth of 6.3-8.7% (LFL 4.8-1.7%) and adj. EBIT margin of 9.9-10.
...

info@introduce.se (Introduce.se)

ABG Sundal Collier - Introduce.se