BHG Group
BHG Group - Target in sight (ABG Sundal Collier)
2020-07-24 07:20
Set to reach medium-term margin target in 2020e
Plenty of room to strike deals
Valuation ranged raised to SEK 74- SEK 149
Approaching its margin targetBHG is reaping the benefits of an underlying structural channel shift to e-commerce, reflected by average organic growth of 17% in 2016-19. In addition, COVID-19 stay-home effects has clearly fuelled growth further, as the group reported a staggering 42% organic growth in its second quarter. In particular, the DIY segment (c. 60% of ’19 group sales) stands out with sales up 48% in organic terms. All in all, revenues grew 58% to SEK 2.7bn, 2% ahead of our expectations. Furthermore, adj. EBIT grew 127% on a 2.6pp margin expansion. On a 12-month trailing basis, the group is set to reach its mid-term margin target of 7% already by Q4’20e, according to our estimates, suggesting that it could be set to review its targets earlier than previously anticipated. In conjunction with the Q2 result presentation webcast, CEO Adam Schatz opened the door for an increased margin target down the road, although stressing that is for the next leg of BHG’s journey. We increase our 2020e, 2021e and 2022e sales and adj. EBIT estimates by 1% and 3% respectively.
M&A around the corner
BHG ended the quarter with a net cash position of SEK 27m, in contrast to its medium-term net debt target of 1.5x-2.5x LTM adj. EBITDA. Hence, there is clearly room to distribute part of its excess cash through dividends. However, the group has a clear acquisition-driven agenda and although Q2 was absent of any deals, we expect further M&A-related news flow as we move into the second part of 2020e.
Valuation ranged raised to SEK 74-SEK 149 per share
To capture the long-term potential of BHG Group, we derive our valuation range from three-stage DCF model scenarios. Scenario 1 gives a fair value of SEK 122 (96) per share while scenarios 2 and 3 yield SEK 74 (59) and SEK 149 (121), respectively. Our increased valuation range is driven by 50bp higher margin estimates
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