Probi
Probi - Growth in North America disappoints (ABG Sundal Collier)
2019-10-08 22:36
Slowdown in sales driven by lower market growth in US
EBITDA margin expected to be remain resilient
We lower US growth estimates to reflect lower demand
Slower-than-expected market growth in the USAfter delivering average sales growth of 27% the past four quarters in the Americas, Probi has experienced weaker sales progress than expected in the third quarter. Probi issued a press release announcing that the company is set to deliver below market sales growth, hence missing its target. According to preliminary reporting, Probi's total net sales for the first nine months of 2019 are expected to amount to SEK 460m (-8.6% vs. ABGSCe at SEK 504m), or +4% y-o-y (0% ex. FX). Management now guides for net sales for 2019 to be in line with the previous year, SEK 604m (-12.7% vs. ABGSCe at SEK 692m). Given Probi’s growth ambitions and substantial exposure to North America (~72% of total sales YTD), the US market development is a clear negative for the company. However, Probi has been putting efforts into its local sales organization and manufacturing units with the aim to support long-term growth prospects. Management does not see similar developments in the EMEA and APAC markets.
Solid EBITDA margin preserved
We are encouraged by the fact that the EBITDA margin is expected to be in line with previous quarters (EBITDA margin was 20.4% Q1’19 and 31.3% Q2’19). On the back of this margin guidance, we raise our EBITDA margin estimate from 25.7% to 27.3% for ‘19e. We still estimate an EBITDA margin erosion (1.8 pp) from ‘19e to ’21e given Probi’s strong focus on growth which is likely to drive up marketing spend.
Estimates down as we await more details from the report
The press release did not specify regional and segmental details in terms of growth and profitability. We suspect that the lower market growth will be sustained for ’20-’21, and we lower our sales estimates accordingly. We will look out for further details on the slowdown in the US as well as granularity regarding the
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