Continued North American and Asian momentum…

…paves way for 29% sales/5% EBIT growth in Q3’19e

EV/EBIT above that of animal health peers in ’19e-’20e

Q3’19e: ~30% sales growth and ~7pp EBIT margin erosion
For Q3’19e, we estimate sales growth of 29% y-o-y for a new quarterly sales record of SEK 31.0m. Again, we expect North America and Asia to be the key sales drivers. We expect the gross margin to decrease by 400bp y-o-y to 72.6%, in large part driven by sales mix (more sales of Bones/Bites with lower gross margins). With similar personnel costs, other external expenses and D&A as in Q2’19, we estimate Q3’19 EBIT of SEK 9.1m, up 5% y-o-y, for a margin of 29.3% (36.1%).

Lowered ’19 estimates, still faster growth in H2’19e vs. H1’19
Our ‘19e EBIT revisions stem from somewhat lower sales and gross margin assumptions, partly offset by slightly lower opex forecasts. Our lowered ‘19e sales stem from later than previously expected starts of the doubled Dental Bones supply and the Mini Dental Bones launch in North America. Longer term, we raise our sales estimates on the back of the acquisition of Biovet, while earnings are lowered on more cautious gross margin assumptions. We still expect Swedencare to post faster sales growth in H2’19 (+31%) vs. H1’19 (+29%). We attribute this to: 1) doubled production capacity to meet unmet demand for Dental Bones in North America, 2) the launch of Mini Dental Bones, 3) resumed sales of Dental Bites in North America after logistical issues in H1’19, 4) larger Australian orders in H2 this year vs. H1 last year, 5) re-stocking orders with the company’s distribution partner in China, and 6) the Biovet acquisition, which could add ~SEK 2-8m to sales in ’19e-’21e.

27.0-15.3x EV/EBIT and 28% sales CAGR for ’19e-’21e
On our updated forecasts, Swedencare is trading at 27.0-15.3x EV/EBIT for ‘19e-’21e. The valuation implies that the share is trading 37-10% above animal health peers for ‘19e-‘20e, and 2% below the same peers for ‘21e. We expect Swedencar
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ABG Sundal Collier - Introduce.se