Manageable COVID-19 effects

Negative revisions following market outlook

Trades at EV/sales of 0.36x for ’21e

Q1: Higher COVID-19 impact than expected
Empir reported net sales of SEK 57.3m (70.4m) for Q1, -10% vs ABGSCe. The deviation was caused by lower sales in Frontwalker, which saw a weak end to March following higher-than-usual sick leave and some project cancellations. EBIT was SEK -0.2m (1.6) vs. our forecast of SEK 1.0m and the deviation was mainly caused by a higher burdened from group overhead costs than we anticipated. The outlook going forward is naturally weighed down by COVID-19, but the effects should be manageable, at least in the short-term as government support packages will ease the P&L effect in Q2. The long-term outlook is more uncertain, and visibility into H2 is lower than normal.

Government support should save Q2, H2 more uncertain
IT research company Radar predicts that IT budgets will decrease by 13% for 2020. Frontwalker enjoys favourable customer segmentation with ~45% of sales within healthcare and public services; we therefore think Empir should be able to see a slightly lower negative effect from COVID-19 than Radar predicts. We lower our 2020 sales estimates by 11%, and our ’21

Need more volume to compensate for group overhead costs
One problem that Empir faces is that the current business volume is not enough to support current group overhead costs. We believe that Empir needs to return to growth in order to better balance its overhead costs, or emphasise cost-cutting to its group functions. The stock currently trades at EV/sales of 0.36x for 2021e.

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