Berner Industrier: Q2 margin not quite up to scratch - ABG

- Sales grew 4%, but adj. EBITA margin down to 6.8% (7.7%)
- T&D segment struggling, but action being taken; E&E demand strong
- Estimate downgrades mainly for '24e-'25e, maintain long-term view

Q2: One-offs obscure profitability
While Q2 sales were strong at SEK 255m, up 4% y-o-y, the EBITA margin of 6.0% (7.1%) disappointed, as the company faced elevated costs due to two changes of managing director in T&D (-1.8m), organisational changes, the name change, and its new website. Adjusted for the explicitly given portion, the adj. EBITA margin was 6.8% (7.7%), still short of our expectations. The managing director changes were a result of the focus on improving the T&D segment in the quarter, but management noted that the current revenue levels in the segment are a challenge for sustainable profit levels, and while higher activity is starting to emerge in some sub-segments, customer decision-making processes are still extended. The T&D adj. EBITA margin was 1.7% (1.4%), while sales declined 7%. E&E, on the other hand, saw strong growth of 16%, but the adj. EBITA margin of 13.8% (18.0%) contracted due to the sales mix and recruitment costs related to business expansion.

Estimates down on orders and costs
As Q2 marked the third quarter in a row of declining order intake (-12%, albeit vs. tough comps), we reduce '24e-'26e sales by 2%, and in combination with somewhat higher costs, this reduces adj. EBITA by 12% in '24e, 8% in '25e, and 3% in '26e. While T&D is struggling a bit, demand remains strong across the E&E segment's customer offerings. On M&A, the CEO stated that it has several ongoing dialogues, but that these processes can sometimes take time.

Maintain long-term view
The share is up 34% L3M (vs. peers +18%, and OMXSSMAC +12%) and is currently trading at a '24e-'26e EV/EBIT of 14-10x and a P/E of 17-13x vs. the peer medians of 18-13x and 25-10x, respectively. We reiterate our fair value range of SEK 40-55, as the weaker than expected Q2 results do not change our long-term view of the company.

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