Throws in the towel on underperformers

Long-term EPS revisions up 26%

Indicative price ranges of SEK 29-38 and SEK 27-36

Icelandic branch and Swedish subsidiary liquidated
The COVID-19 pandemic has increased Capacent’s rate of change. Liquidation of the Icelandic branch and struggling Swedish subsidiary Capaman has followed the re-organisation in Sweden presented in the Q1 report. The Icelandic branch acquired in 2017 did not live up to expectations and has burdened the group’s profitability since the acquisition took place. The COVID-19 crisis saw the outlook worsen, and a strategic decision to liquidate the branch was made effective on 28 May. We do not know Capaman’s historical results, but we believe it is the main reason for the performance drop seen in the Swedish operations over the last couple of years. COVID-19 has put that business in a position deemed unsustainable, and the decision to dismantle was effective as of 11 June. These actions will boost flexibility in the cost base and raise the group’s long-term profitability potential.

A more agile Capacent will arise post COVID-19
The new Capacent group will be smaller and more agile. Following the liquidations, we have decreased our long-term sales estimates by roughly 33%. However, as the Capaman dismantling is expected to lead to yearly savings of SEK 17m, we have raised our long-term EBIT and EPS estimates by 20% and 26%, respectively. Our new estimates see the Swedish operation returning to an EBIT margin of 8.9% and the Finnish branch reverting to an EBIT margin of 14% in 2022e.

New financial targets in conjunction with the Q3 report
The restructuring means the current financial targets are obsolete. New targets will be presented in conjunction with the Q3 report, and we think it will focus more on profitability than growth. In terms of valuation, we see an indicative price range of SEK 29-38 based on EV/sales ’21e and a SEK 27-36 per share range on P/E ’22e.

info@introduce.se (Introduce.se)

ABG Sundal Collier - Introduce.se