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Garo
GARO - Keeps on growing, no fuel needed (ABG Sundal Collier)
2019-05-16 00:00
E-mobility maintains high growth trajectory, up by 89%
Organic growth 19% vs. ABGSCe 8%
Soft outlook for Project and Temporary Electricity in ’19e
Strong start to the year, impressive margin and growthGARO reported a strong opening quarter; sales were SEK 248m (+11% vs. ABGSCe 225m), resulting in 20% growth y-o-y (19% organic, 1% FX). Growth was mainly attributable to E-mobility (23% of group), which grew by 89% for the period (ABGSCe 34%). Electrical Distribution Products (47% of group) also performed well, up 15%; worth noting is that the segment benefited from relatively easy Q1’18 comps. The Project and Temporary Electricity businesses showed signs of a slowdown. Excluding the SEK 4m cost of severance pay for the former CEO, adj. EBIT was SEK 33m, resulting in a margin of 13.4% (12.1%). The margin increase was largely due to the strong volume growth in Q1.
Estimates up, with E-mobility at the forefront
We raise our sales estimates by 5% for ’19-’21e. We expect GARO to continue to grow at healthy levels over the year, driven by the strong structural trend relating to E-mobility (+50% ’19e). We note that E-mobility is increasingly becoming a larger portion of group sales, from 10% in Q1’17 to 23% in Q1’19. We remain prudent in our assumptions about the remaining segments and acknowledge a softer outlook in 2019. We fine-tune our margin assumptions but are careful to extrapolate margins from Q1’19. In addition, it was revealed that Patrik Andersson was appointed CEO for GARO. Patrik has been the interim CEO since February and has been with the company since 2007.
At current levels we estimate E-mobility value of ~SEK 1bn
With its high E-mobility focus, GARO provides an excellent opportunity to gain exposure to the structural trend of electronic-vehicle chargers. One should ask: what is one is willing to pay for such exposure? The share is up 35% YTD and is trading at ’19e EV/EBIT of 18x. On our estimates, if one assumes an EV/EBIT multiple for GARO ex E-mobility of 1
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