Nilörngruppen
Nilörngruppen - The burden of being in fashion (ABG Sundal Collier)
2019-07-19 18:12
Sales -3% and EBIT -26% y-o-y
Hurt by Easter, lost volumes and price pressure
Likely to see a few more quarters of weaker earnings
Disappointing quarter on all fronts…Q2’19 turned out to be a weak quarter for Nilörngruppen. Sales were down 3% y-o-y at SEK 196m (-6% vs. ABGSCe SEK 209m). As expected the Easter had an impact on performance, but a reduced demand also impacted significantly, were volumes were lost from a few larger customers. Even more surprisingly EBIT margin came in at 10.3% (ABGSCe 12.0%), which resulted in a 26% decrease in EBIT of SEK 20m (-20% vs. ABGSCe SEK 25m). The decrease was largely due to a decrease in GM, resulting from product mix (few large RFID orders), increasing prising pressure as well as cost relating to signing new customers. Net income was SEK 15m (-22% vs. ABGSCe 19m).
…and we will extrapolate into H2’19e
As we understand from management, it is likely that the above mentioned issues will stick around and while the GM is expected to recover slightly in H2’19e, we think it will not be in line with historical levels of around 44%. Overall, for ’19e we expect a GM of 42.2% and an EBIT margin of 10.0%. We also expect further organic growth headwinds, with customers facing tougher end-markets. We expect the group to grow at a rate of 5% in ‘19e. Over the ’20-21 period we expect that Nilörn will recover and the margin will return to historical levels of 12% by ‘21e, and the group will grow at a rate of ~7% per year. Overall, we think this quarter has highlighted a few main points to remember: there is pricing pressure from customers, signing new customers isn’t cheap and the overall retail environment shouldn’t be ignored.
Share down 11% on report, trading at ’19e EV/EBIT of 11-12x
Before the report the price was up ~2.5% YTD, but it is now down 9%, trading on a ‘19e EV/EBIT of ~11x. With a weak quarter and a softer outlook, we believe that it will take some time to recover to historical levels of 10% sales growth, at margins of ~12% and ROIC of >
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