+15% growth, mixed performance across segments

E-mobility up 61% y-o-y, but with unexpected costs

Weak outlook for Project and Temporary Power

E-mobility is performing, but leaving its mark on EBIT
GARO reported a mixed quarter; sales were SEK 247m (+6% vs. ABGSCe 234m), up 15% y-o-y (15% organic, 0% FX). Growth was mainly attributable to E-mobility (22% of group), which grew by 61% (ABGSCe 45%). Electrical Distribution Products (49% of group) also did well, with sales up by 16%, benefitting from a healthy renovation trend. Sales in the Project and Temporary Power product areas were weak at -3% and -24%, respectively. While the GM was stable, adj. EBIT was SEK 24m (-8% vs. ABGSCe SEK 26m), on a margin of 9.7% (ABGSCe 11.2%). The weaker margin is attributable to investments in market presence and sales, needed to meet growing demand for E-mobility. Net income for the period was SEK 18m (ABGSCe 20m), up 20% y-o-y.

A good growth case, but we are cautious about opex
The outlook for the Temporary Power and Project businesses looks rather bleak due to a slower construction market in Sweden. Still, E-mobility and Electrical Distribution Products should help to offset. We have raised our ’19e sales by 1%, driven mainly by the >50% e-mobility growth. For ’20e-’21e we raise sales by 3-5%. We are cautious about EBIT in light of the rapid growth of E-mobility. Q2’19 showed signs of increased costs needed to benefit from the structural growth trend. We adjust EBIT margins assumptions by -40bp, with stable gross margins.

E-mobility exposure isn’t cheap at ’19e EV/EBIT 23x
GARO stands out as an opportunity for investors to get exposure to the electric vehicle trend. Still, E-mobility makes up around 22% of group sales, with the remaining 78% of the exposure to the more modest electricity industry. At ’19e EV/EBIT of 22.9x we expect you pay around SEK 1.7bn for the E-mobility segment, ~60% of the market capitalisation and implies an EV/Sales multiple ~7x. That is assuming a combined EV
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