Momentum in North America and Asia likely to continue…

…driving 18% sales growth and 26% EBIT growth in Q2e

Now EV/EBIT above that of animal health peers ’19e-’20e

Q1’19 development comforting for coming quarters
Swedencare’s Q1’19 results showed good progress. Sales growth of 41% trickled down to 78% EBIT growth, driven by both an expanding gross margin and tighter SG&A/sales. Asian sales increased by >200% y-o-y, and currency-adjusted sales from the US grew by 55% y-o-y (despite logistics issues). As we have highlighted earlier, we expect Asia and North America to be the key growth drivers for Swedencare in ‘19e-‘21e. Hence, we view the Q1 development as comforting for coming quarters, and we expect to see an uptick in sales growth in 2019e.

Q2’19e: 18% sales growth and 2pp EBIT margin expansion
For Q2’19e, we estimate sales growth of 18% y-o-y to SEK 30.2m, driven by continued momentum in North America and Asia. We believe that the sales momentum in powder has continued, and we expect to see >60% y-o-y growth in Dental Bones (despite production constraints). We expect the gross margin to increase by 210bp y-o-y to 74.4%, again driven by more in-house production in Ireland. With similar personnel costs, other external expenses and D&A as in Q1’19, we estimate Q2’19 EBIT of SEK 9.3, up 26% y-o-y, for a margin of 30.9% (28.9%). The Q2’19 report is due on 26 July.

Lifted ’19e estimates, 28-17x EV/EBIT ’19e-’21e
Our 2019 estimate revisions stem from updated Q1’19 numbers, the implementation of IFRS 16 (smaller impact) and somewhat higher/lower expectations for Q2’19e/Q4’19e. Longer-term estimates remain largely unchanged. On updated numbers, shares of Swedencare are changing hands at 28-17x EV/EBIT for ‘19e-‘21e. The valuation implies the share is trading 28-8% above animal health peers for ’19e-‘20e, and 6% below the same peers for ‘21e. We expect Swedencare to deliver higher sales/earnings growth and margins vs. its listed animal health peers (see peer comparison on page 5
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