DistIT
DistIT - The dust has finally settled (ABG Sundal Collier)
2020-02-25 13:25
Profitability improvements from Q2-Q3’19 restructuring
Sales down 2.3%, adj. EBIT margin +0.7pp
Value range at SEK 20-75, EV/EBIT ’20e of 6.8x
Strong ending to a shaky yearAt last, DistIT showed signs of improvement. Sales were SEK 707m (-6% vs. ABGSCe 755m), down 2% y-o-y, mainly due to previously lost supplier contracts in the Aurora segment. However, Deltaco, Septon and Sominis delivered double-digit growth of 23%, 18% and 58%, respectively. Apart from the top line, DistIT’s focus during 2019 was on restructuring the organisation. The SEK 42m one-offs in Q2 and Q3 showed surprisingly quick results, adding SEK 11m to Aurora and Deltaco EBIT in Q4 alone. Group EBIT increased to SEK 38m (+8% vs. ABGSCe SEK 35m). Adjusted for the one-offs in Q4’18, the EBIT margin improved by 0.7pp y-o-y. Looking ahead, we remain optimistic about the FY’20 cost savings effects, but raise concerns about the coronavirus outbreak and its impact on the global supply chain.
Estimate revisions for ’20e-’22e
Taking Auroras’ lost supplier contracts together with the coronavirus outbreak, we lower our ’20e top line estimates by ~4%. This added downturn in ‘20e leads to underlying changes in ’21e-’22e, where we expect DistIT to deliver 4% annual sales growth. However, by entering 2020 with a more structured organisation, a sharpened workforce and a new CFO, we believe DistIT can offer further profitability improvements. We continue to account conservatively for the previously announced annual cost savings of SEK 45m (ABGSCe SEK 32m), and assess an EBIT margin of 4.2-5.1% during ‘20e-’22e, implying a hike of ~1-2pp.
Value range at SEK 20-75, trading on EV/EBIT ’20e of 6.8x
We reiterate our value range of SEK 20-75, based on our three-scenario DCF analysis. We now see scenarios 2 (average adj. EBIT margin of 5.5%, stable growth at ~3%) and 3 (EBIT margin trending towards 6.5%, top line growth at a CAGR of 5% for ’22e-’30e) as more likely than 1 (margins trend down to historical levels, growth of ~1%).
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