Flat organically y-o-y despite presence in lockdown areas

Sales SEK 32m: +17% vs. ABGSCe of SEK 27m

High activity in June and July speaks for quick recovery

Q2’20 results proving business resilience
Swedencare’s Q2 report was well above expectations, beating our sales estimates by 17%. We had forecast a bigger drop as an effect of the large physical presence in countries where lock-downs have been strict. Although the sales growth was lower than we are used to, organic growth was flat, proving the resilience of the ProDen Plaqueoff brand. On the profitability side, adj. EBIT was SEK 7.2m vs. our estimate of SEK 1.5m. The much stronger EBIT was largely from the sales beat and a stronger gross margin due to the product mix, where ProDen Plaqueoff was 85% of sales (Q2’19 78%). The company says June was 40% of Q2 sales and that the tempo has remained strong in July, speaking for a quick v-shaped recovery with the trough in April-May.

All eyes on Stratford integration and synergies
We have made some changes after the report, mainly for 2020, as we now expect Swedencare to have a rather quick v-shaped recovery. ‘21e-‘22e sales are lifted 1-2% and EBIT 2%. Our focus will now be on the integration of the Stratford acquisition, and more specifically the cross-selling activity of the ProDen Plaqueoff brand through Stratford’s network of veterinary clinics. We expect sales synergies to show in 2020, with a good chance of the first deliveries as early as in Q3.

Share is trading at ‘22e EV/EBIT 23.1x
On our updated estimates, the Swedencare share is trading at adj. EV/EBIT and P/E multiples ‘20e-‘22e of 43x-23x and 57x-31x, respectively.

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ABG Sundal Collier - Introduce.se