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Garo
GARO - Enough power to keep on going? (ABG Sundal Collier)
2019-11-12 21:03
A deeper look into E-mobility growth drivers
Facing high growth and intensifying competition
Up 85% YTD; Fair value range SEK 233-353
Electric vehicles: growth trend that doesn’t need any fuelWe consider GARO one of the best stocks to get exposure to the explosive electric vehicle (EV) trend. Today, the group exposure to E-mobility is around 22%, while the remaining business is exposed to the overall electric installation market. This report aims to look closer into the outlook for EVs and EV chargers in both Sweden and Europe in order to get an understanding of GARO’s E-mobility prospects.
>30% market CAGR attracting international competition
A range of indicators point to rapid growth in EVs and EV chargers. We estimate that the Swedish and European EV market will grow by a CAGR of over 30% in ’19e-’30e, driven by increasing environmental awareness, political initiatives and economic incentives. We expect this trend to drive growth for GARO E-mobility in the foreseeable future. GARO has a strong position and product offer in the more premium segment of EV charging, but we still expect GARO to have difficulties growing at market pace while maintaining profitability. Note that competition in the space has intensified, with both simpler and more sophisticated chargers coming to market. We expect the competition to lead to pricing pressure. It is estimated that around 95% of charging is done at home, making it the more interesting charging segment in terms of growth prospects and as a result it appears to be the most competitive segment.
Valuation at 25x EV/EBIT implies success already priced in
The share is up 85% YTD, trading at a ’20e EV/EBIT of 25x, having re-rated from 16x early in the year. While the outlook for EV chargers is bright, the segment today only accounts for around 22% of group sales YTD (30% by ’21e), with the remaining exposure in the more moderate growth space of electrical installations. By applying both a sum-of-the-parts and DCF methodology across thr
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