Empir Group
Empir Group - Seasonal pattern looks set to continue (ABG Sundal Collier)
2018-11-15 13:38
Improved results for all divisions
Margins slightly revised for ’19e-’20e
Currently trading at EV/EBIT 5.7x for ’20e
Restructuring continues – but profits improvedEmpir delivered a solid Q3 report, with improved y-o-y profits for all of its segments. Some troublesome units in Solve continue to hamper earnings for the segment, but the largest problems have been addressed, and management expects these units to neutralise in 2019. The sequential margin expansion in Serve was positive, and we continue to believe that it will strengthen. Furthermore, lower investments within Apply surprised us, which we believe shows that Empir will control costs over time for a better balance. Adj. EBIT came in at SEK 0.9m, when adjusting for restructuring costs of SEK -1.3m, and SEK 1.1m that came from a defaulted earn-out payment. In conclusion, the pattern we saw last year appears to be repeating, with a stronger Q1 and Q4e. This is to some degree expected, given that the current business mix is more tilted towards its consultancy business.
No major underlying revisions
Excluding the earnings beat in the quarter, we have left our estimates for the current year basically unchanged. Solve’s result was more stable than we expected, which gives us slightly more confidence that it will stabilise in 2019 and beyond. However, we do expect sales to continue to decrease in Q4e, because restructuring within the segment has also led to lower volumes. Furthermore, we expect that Empir will be better able to balance its investments in Apply going forward, and that they will not be as dilutive to margins as previously anticipated. We have slightly increased our EBIT margin estimate, by 20-30bp for ’19e-’20e.
Headroom for further acquisitions
Looking at Empir’s balance sheet, we argue that the company still has plenty of headroom for further acquisitions, in order to reach its financial targets in 2021. On our revised estimates, Empir is currently trading at adj. EV/EBIT of 5.7x for 2020e.
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