• We cut '24e-'26e adj. EBITA by 8-4%
• Should break seven-quarter negative org. decline streak
• Trading at '24e EV/adj. EBITA of ~10x

What to expect in Q1'24

We anticipate a y-o-y organic decline of -7% for Q1'24, which we expect will mark the final quarter with negative y-o-y growth in a string of seven quarters. Starting in mid-Q1, a minor positive effect from price negotiations with grocery retailers should offset product and brand discontinuations somewhat. We expect Q1 sales of SEK 906m and adj. EBITA of SEK 44m, which implies a margin of 4.8%, as well as operating cash flow of SEK -113m as we expect working capital tie-up in the quarter.

Estimate changes

We increase '24e-'26e sales by 1% but cut '24e-'26e adj. EBITA by 8-3% on higher opex assumptions. Our estimates for '25e-'26e imply an organic growth rate that is in the lower bound of the company's new targeted organic growth rate range of 3-5%. One technical risk to our estimates is a continued discontinuation rather than divestment of non-strategic brands. That said, such discontinuations would likely be margin accretive. Finally, based on the new financial targets, there is an opportunity to allocate capital towards buybacks should selective M&A nor dividends prove be suitable alternatives. However, this is relevant once the balance sheet becomes more deleveraged (likely to around 1-1.5x Net debt/EBITDA).

Implied valuation

Based on our revised estimates, the company is trading at ~10x '24e EV/adj. EBITA, which is in line with current peer multiples. We note, however, that peers are trading ~35% below the 10-year historical median of nearly 15x NTM EV/EBITA.