We expect 5% org. sales growth in Q3’21…

…but adj. EBIT a touch below Q3’20

Raised earnings estimates due to recent M&A

Decelerating but strong sales growth
We believe that BHG is likely to report a deceleration in organic sales growth but remain at hefty levels vs 2019. With several DIY-related peers having released solid trading updates, the DIY division seems likely to be the key driver of growth, as seen in previous quarters. We expect organic growth of 10% y-o-y, or 49% versus Q3’19, in DIY. The corresponding figures in Q2’21 were 15% and 74%, respectively. We forecast a significant deceleration in the Home Furnishing segment, which we believe has been negatively affected by eased restrictions. Our estimates suggest organic growth of -3% y-o-y, or 25% versus Q3’19. All in all, we forecast organic sales growth of 5% for the group. In addition, acquisitions are expected to add just below 23% to sales whereas a minor FX effect could weigh on sales by 0.5%. Hence, our total sales estimate of SEK 2.9bn corresponds to total growth of 28%.

A slight earnings decline
BHG has gradually been expanding its gross margin through positive product mix, price efficiency and slight FX tailwinds. However, higher freight costs are likely to weigh and we pencil in an 80bp contraction in Q3’21e. Furthermore, a higher share of proprietary brands and higher marketing spend are likely to result in a 2.2pp decrease in the adj. EBIT margin y-o-y. As such, our adj. EBIT margin estimates suggest a level 4% below Q3’20 at SEK 186m.

Raised earnings estimates but weaker balance sheet
We have cut our organic sales assumptions by 1% over the coming years and lower our underlying margin estimates slightly. However, as we add the recently acquired HYMA, AH Trading and Hafa, our ’22-’23 earnings estimates have been raised by 8% and 7%, respectively. Though, with a higher indebtedness (NIBD/EBITDA of 1.7x at year-end), we leave our valuation range of SEK 88-224 unchanged.

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