Q3 report on 24 October

Q3e sales growth of 2%, but EBIT down 8%

Aurora to drag on group growth, -10% y-o-y

Q3 estimates: sales of real estate
We expect moderate sales growth of 2% in Q3’19e, resulting in SEK 582m, driven particularly by -10% growth in Aurora. We expect that, combined with difficult comps (23% growth in Q3’18), the ongoing integration work has left its mark on growth and client relationships. We also expect that the lower growth will contribute to a weaker margin along with SEK 8m in additional restructuring costs. We expect a gross margin of 22% and adj. EBIT margin of 4.1% (4.5%), resulting in EBIT of SEK 24m, down 8% y-o-y. In September, the company sold DistIT Fastigheter AB, which we estimate will provide SEK 44m in profit; including the sale, we expect group net profit of SEK 60m (SEK 16m excluding the sale), resulting in EPS of SEK 4.86 (SEK 1.27 excluding the sale).

Estimate changes
We lower our sales estimates by 1%, driven by weaker growth expectations for Aurora in H2’19e; overall for ‘19, we expect growth of 7%. Along with the lower growth, we lower our ’19e EBIT margin by 10bp. For ’20-’21e we leave estimates largely unchanged. We expect that the ongoing restructuring and integration will support higher margins in the future. We have included 70% of the SEK 47m communicated cost savings, which are expected to be implemented by mid-2021.

Valuation
Our fair value range of SEK 25-90, with an average of SEK 58, is derived from a three-scenario DCF analysis. For more information see our Case Refresher published on 13 September 2019. We conclude that if current initiatives progress as expected, there is upside potential to the current valuation. Still, we have not yet seen any proof of cost savings and we expect low organic growth going forward. Investors should consider their conviction in the restructuring before making an investment decision.

info@introduce.se (Introduce.se)

ABG Sundal Collier - Introduce.se