COVID-19 has limited impact on Generic

We expect lower scalability short term

Stock trading at ’21e EV/EBIT of 14.8x

Q1: Still healthy demand, Messaging the growth driver
Generic reported net sales of SEK 18.3m (16.6m) for Q1, which was 10% y-o-y growth and 2% below ABGSCe. Demand is still healthy, with 134 new customer agreements signed in the quarter. COVID-19 has lowered growth from customers active in marketing, travel and personal transportation, but this has been offset by higher than normal demand in health care and e-commerce. The long-term effect is harder to predict, but indications are that the current crisis is speeding up digitalisation in society, which would benefit Generic. EBIT was SEK 2.7m (2.4m), 9% below our forecast, caused by slightly lower scalability than expected, as Minicall’s growth initiatives have raised costs temporarily. We remain positive about the long-term scalability and we think it will return in 2021, when the extra costs for the new Minicall platform should begin to fall.

Small estimate cuts as growth initiatives hurt margins
For 2020e, we lower sales by 1.7% and EBIT by 5.0% from the Q1 deviation and lower expected short-term scalability. For 2021e, we raise sales by 1.3% following the successful launch of the new terminals for Minicall, with 7 out of 10 customers already having upgraded. However, the sales upgrade is not enough to offset the higher costs that we expect for Minicall discussed above, so our 21e EBIT is down by 0.7%.

Solid outlook, proven scalability
The performed well at the end of 2019, with an increased valuation as a result. This could explain why it has not outperformed OMXSTHPI in the COVID-19 crisis. However, Generic should not be hurt financially by COVID-19. The EV/EBIT valuation has come down recently but it is still higher than its 2-year average, at a ‘21e EV/EBIT of 14.8x.

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