Product sales to be hurt but Services should hold up

Reduced ‘20e sales and EBIT by 16% and 65%, resp.

Solid balance sheet, 7.0x ‘21e EV/EBIT

Profit warning issued due to COVID-19
On 19 March, Doro issued a profit warning saying that COVID-19 will hurt its financials in 2020. Although it did not quantifying any numbers, we believe that the impact will be severe, especially for Product sales. While Doro finds some comfort that a large percentage of its Service sales are recurring, we believe that Product sales will be hurt due to a social lockdowns in several of its key markets and an overall lower demand for buying feature phones. In conjunction with its Q4 report, Doro mentioned that it saw some supply chain issues, as most of its Products are manufactured in China. While we assess that these issues are now close to being resolved, we think that this will affect Q1. Even so, the main risk we see in 2020 is on the demand side.

Products forecast lowered, Services relatively unchanged
We reduce our ‘20e EBIT by 65%. While we think that some cost cutting can be done, this reflects lower Product sales forecasts (-19% on ‘20e), along with lower gross margin assumptions as we think that margins will be hurt amid an increased share of airfreights. Regarding Services, we think that the situation could entail an increased willingness for municipalities to buy telecare solutions in the longer run, as we anticipate that they will want to better aid their inhabitants. However, their short-term focus is plausibly elsewhere, for which we assess that few new tenders will be announced during Q1-Q3’20. Therefore, we have reduced ‘20e Service sales by 3%, but keep ‘22 estimates intact. We also think it will be challenging for Doro to pursue its efficiency efforts, in order to strengthen Services’ GM, and have reduced our forecasts accordingly.

Rebound in 2021 expected
For Products, we see 2020 as a lost year but believe that a rebound in Product sales should be seen in 2021 amid resurgent
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