88% y-o-y EBIT increase expected

EPS revisions due to IFRS leasing

Report due on 29 April

Q1 expectations
We expect Elanders to report Q1’19 group sales of SEK 2,704m, up 11.6% y-o-y (5.1% organic and 6.4% FX) and adj. EBITA of SEK 144m, with 5.3% margin, up 190bp y-o-y. Continued strong demand and growth in the Supply Chain Solutions segment are the drivers, along with the company’s increased focus on profitability. Moreover, the struggling projects addressed in Q1’18 were resolved in H2’18 and further improved in Q1’19, making comps easy. We make estimate changes due to further IFRS 16 updates and updated FX, and slightly lower our margin assumptions for 2019-21e, yet implying an EBIT CAGR of 14.4%.

IFRS 16 to affect reported figures significantly
Elanders will start reporting figures according to IFRS 16 – resulting in, among other effects, an EBITDA increase of SEK 650m, annual interest leasing payments amounting to SEK 70m, and an increase in interest bearing debt by SEK 1.93bn. Even though the company has guided for the impact, we believe this quarter could be messy due to these cosmetic changes. In our view, however, it should not affect fundamental value.

Profiting on its solid position in the value chain
Elanders has stated that it is set to focus on increased profitability ahead of growth, with Supply Chain Solutions’ LGI as the main contributor. As the demand for outsourced services is expected to grow further, we believe Elanders will profit from this owing to its strong position in its customers value chain and given it is an established provider of supply chain solutions. There is high demand for Elanders’ services stemming from new and existing customers (often highly profiled brands), allowing Elanders to be selective as new contracts are established or current contracts are evaluated due to its strengthened bargaining power. We believe that these factors bode well for margin expansion, along with the fact that Elanders’ services are hard to replace once
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