• We raise '25e-'26e adj. EBIT by 1%
• Continued gross margin recovery expected
• Trading at '24e EV/adj. EBITA of ~10x

The hard work is paying off

The Q1'24 numbers beat our estimates on sales and adj. EBIT by +3% and +17%, respectively. The company is actively discontinuing negative and low-margin SKUs and appears to be more than halfway through the discontinuation process. This implies that organic growth for '24e should be marginally negative, but that comps for '25e will be much easier. Constructively, this will further aid the EBIT margin. Given the limited working capital tie-up, we surmise that the discontinued SKUs have been relatively capital-intensive, and that is positive for the future cash conversion.

Estimate changes

We raise '24e-'26e sales by 1% and '25e-'26e EBIT by 1%, leaving '24e EBIT unchanged on the back of the report. While we assume 30-10bps higher gross margins, we also raise our opex estimates because the company's cost base appears to be rather slim. That said, more work can be done with respect to supply chain management and in the factories. We got the impression that the management team was satisfied with the current leverage ratio of 2.3x, but that it seems keen on reducing it further to around 1-1.5x.

Implied valuation

Based on our revised estimates, the company is trading at ~10x '24e EV/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.