Q2’19: Sales and adj. EBIT below our expectations

We expect to see improvements in H2’19

14-9x adj. P/E and 14-10x adj. EV/EBIT ’19e-’21e

Softer Q2’19 than we expected, eyeing a better H2’19
ITAB’s Q2’19 results did not live up to our expectations. Organic sales growth of -3% fell short of our estimate for flat growth, and adj. EBIT of SEK 57m was 44% below our forecast. Reported EBIT, however, exceeded our expectations due to a positive one-off. Although organic growth was negative, we view it as decent given the strong growth in Q1’19 and compared to the very negative growth rates throughout ’18. Given that H2 usually is ITAB’s strongest sales season and with cost initiatives yet to hit, we expect to see improvements in H2’19 (where ITAB is meeting increasingly easy comparable quarters). We are more confident in light of the CEO’s comments about a more positive market outlook now vs. H2’18, and that positive effects from the cultivation of new customers (that burdened H1’19) will help in H2’19. Although seeing is believing, we expect ITAB to return to organic growth and show meaningful earnings growth this year.

Q2 details
Q2 sales -1% y-o-y (of which -3% in LC) to SEK 1,531m (-3% vs. ABGSCe 1,577m). Reported EBIT +12% y-o-y to SEK 93m (+13% vs. ABGSCe 82m). Adj. EBIT -17% y-o-y to SEK 57m (-44% vs. ABGSCe 102m), for a margin of 3.7% (vs. ABGSCe 6.5%). Reported EBIT included positive non-recurring items of SEK 36m (+42m sale of property and -6m in restructuring costs, vs. ABGSCe -20m in restructuring costs). All regions but Northern Europe (-9%) and Southern Europe (-4%) had positive y-o-y sales growth.

’19e adj. EBIT lowered by 10%, 14-10x adj. EV/EBIT ’19e-’21e
Apart from the Q2 deviation, we make minimal changes to our estimates. Consequently, we increase our reported EBIT by 2%, but lower our adj. EBIT by 10%, for ’19e. On updated estimates, ITAB trades at 14-9x adj. P/E, 14-10x adj. EV/EBIT and 6% dividend yield, for ’19e-’21e.

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