Q2 report on 23 October

We expect weak organic growth, due to macro worries

EV/EBITA ’19e above peer average

Q2’19/20 expectations: Germany and UK dragging on growth
We expect a weak quarter from Lagercrantz, due to the weaker macro-economic climate. We think that the Electronics segment (22% of group) in particular will struggle, due to significant exposure to Germany, and end-markets under pressure. We also note that challenging comps for Communications and ongoing Brexit worries are likely to have left a mark. As for our estimates, we expect sales of SEK 971m, indicating growth of 8% (1% organic, 6% M&A, 2% FX). The focus on market-leading niche product companies should help to maintain a stable GM, but a higher fixed cost base could put a drag on EBITA margins in a lower organic growth scenario. We estimate EBITA of SEK 134m, on a margin of 13.8% (13.1%). We estimate EPS of SEK 1.29, up 20%, y-o-y.

Forecast changes: weaker organic growth outlook
We lower our sales assumptions for FY’19/20e-’21/22e by 2%, resulting from a weaker organic growth outlook than we had previously expected. Overall, we still expect 10% sales growth in ’19/20e and EPS growth of 16%. We expect the group to maintain a stable GM around 37%, but fine-tune our EBIT assumption slightly, driven by updated D&A assumptions, resulting in a margin of 14.0% in FY’19/20e expanding to 14.5% by FY’21/22e. We expect that a further focus on proprietary products will help to drive margins long-term, as Lagercrantz is moving towards its product mix goal of 75% proprietary products (55% in Q1’19/20 and 70% by ‘21/’22e ABGSCe).

Next 12-month EV/EBITA 6% above 5y average
The share is up >40% YTD, trading at 15.6x ’19/20e, 14% above the peer average (but -4% vs. Indutrade and -8%vs.Lifco). On a NTM basis, the share is trading at a 6% premium to its 5y average. We like the smaller size of Lagercrantz compared to core peers, and are confident about the benefits of stable acquired growth coupled with higher margins o
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