Doro
Doro - Strong report, driven by high Product margins (ABG Sundal Collier)
2019-07-15 09:40
Sales in line, but large EBIT beat vs. ABGSCe
’19e EBIT raised by 18%
New CEO in place and an enhanced Services focus
Sales +8.3% y-o-y, adj. EBIT rose 16%In Q2, Doro’s sales rose by 8.3% (we estimate 3% FX, 5% M&A and 0% organic). Although this was in line with our forecast, our adj. EBIT projection was all but smashed by 69%. The deviation was largely explained by a strong gross margin in Products, which, despite being down 2.3pp y-o-y, stemmed from a favourable product & market mix combined with FX hedges. Sales and gross margins in Services were less impressive (6.8% organic LFL growth), which we believe is a reflection of increased competition in all of Doro’s regions.
We raise ’19e EBIT by 18% due to higher GM assumptions
To us, the q-o-q uptick in gross margins for Products reflects Doro’s strong position in the market for feature phone, especially in the premium segment. Because the market has lately been in decline, we believe that the smallest actors will start fading out in due time. Owing to this, we assess that Doro will maintain and may even increase its market share ahead. On the back of this, we raise our gross margin assumptions for Products, although we leave our sales forecast relatively intact. On Services, we raise some concerns about the recent trajectory (both relating to gross margins and sales) for which we have somewhat lowered our expectations ahead. As we only make modest opex revisions, the sum of this entails an almost 18% hike to our ’19e EBIT.
The share is trading at 8x EV/EBIT & 8% FCF yield on ’19e
The new CEO (former CFO) is now in place and states that his primary focus is to drive Doro’s transformation progress into a service company. As of Q2, the segment accounted for ~20% of sales (Doro’s goal is 30%). We continue to believe that the segment will keep seizing a higher share of sales ahead, but that the main contributor will be from M&A and not organic, which we have not incorporated into our forecast. On our revised estimates, Doro’
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