Chinese property divestment to boost EBIT by SEK 30m

We are positive about the rights issue of SEK 41.2m

Report due on 22 October

Property divestment
We expect Oboya to report Q3 sales of SEK 113m, gross profit of SEK 28.8m, for a margin of 25.5%, and adj. EBIT of SEK -2.2m. This implies 5% negative sales growth, due to unprofitable business being phased out, which is part of Oboya’s strategic plan. Q3 is usually a weak quarter for the horticulture industry, so we will focus on Oboya’s gradual profitability improvement. We also expect the proceeds from the property divestment in China to lift revenue by SEK 38m, with a D&A effect of SEK -12m.

Rights issue to strengthen the balance sheet
In September, Oboya announced that it had sold its property in China, which we believe is positive, as it frees up capital and lowers net debt. Furthermore, on 9 October, Oboya announced that it would do a rights issue of shares totalling SEK 41.2m. We believe this is positive, as the proceeds will allow Oboya to refinance some of its loans, reducing debt and interest rates, which should improve the company’s financial stability, future earnings and cash flow. We have cut our sales estimates slightly due to the phasing out of unprofitable business and FX. We also lift the gross margin as a result, and we incorporate the property sale in China.

Ongoing initiatives to drive EBIT growth
We expect an ‘18-‘21e organic sales CAGR of 2% and we see EBIT margins improving due to reduced opex from the focus on profitability. On our estimates, the adj. EBIT margin improves from 0.6% to 3.3% resulting in an adj. EBIT CAGR for ’18-’21e of 44%. Oboya is currently trading below its equity value at a P/B of 0.6x, and a ’20e EV/EBIT of 16x, which drops to 11x in ’21e. We also see the net debt/EBITDA declining in the coming years, and with additional funds from the rights issue, the ratio and debt/equity should fall even further.

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