Q1 EBIT 35% ahead of expectations; margin 15.8% (7.6)

We raise ’21e EBIT by 12%, ’22-23e by 8-3%

Trading at 35x ’21e EV/EBIT on a strong outlook

Q1: EBIT +144% y-o-y (+35% vs. ABGSCe)
GARO delivered a good Q1 report, with group sales of SEK 291m (+6% vs. ABGSCe), up 17% y-o-y, +15% organically (ABGSCe 11%). Group EBIT was impressive at SEK 46m (+35% vs. ABGSCe), with a margin of 15.8% (7.6% in Q1’20) and well above ABGSCe at 12.4%. The major earnings improvement was mainly a factor of strong E-mobility growth (+62% y-o-y, +17% vs. ABGSCe); E-mobility Sweden grew by 108% y-o-y but the segment was held back somewhat due to a 12% decline in the International market, as deliveries of fast chargers in Norway were postponed due to pandemic-related delays and are now expected to be delivered in Q2. Temporary Power was strong (+20% y-o-y, +22% vs. ABGSCe), while the remaining two segments were largely in line with Q1’20 and our expectations. On a geographical basis, Sweden drove profits (sales +25% y-o-y) and GARO managed to gain market share, while International was in line with last year’s performance. Like other businesses in the sector, GARO’s production and costs may be affected by limited access to raw materials and components. However, GARO aims to offset higher costs through price increases.

We raise ’21e EBIT by 12%; impact from GARO E-mobility
Management provided light Q2’21 guidance, and expect the high E-mobility volumes and positive product mix to be broadly similar to Q1. We raise ’21 EBIT by 12% and ’22-‘23e EBIT by 8-3% due to strong E-mobility momentum, with the green technology tax deduction boosting demand. We should also see solid demand in the remaining segments and believe a favourable mix in tandem with tight cost control could boost margins.

Trading at 35x ‘21e EV/EBIT, offers 2% FCF yields ’21-’23e
We reiterate our positive view on GARO as a quality company with good operational performance, as demonstrated by the scales’ leverage effect on margins this q
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