Careium: A slight postponement to the margin recovery - ABG

Strong top line, 3% above ABGSC Underlying profitability weak, set to improve from now CEO announced he is leaving Q2 thoughts

While the top line was slightly above our expectations, Q2 adj. EBIT including all non-recurring items was burdened by a pressured gross margin and a steep sequential increase in adj. opex. The reported EBIT was exceptionally strong, but we note a one-off revaluation temporarily supported it, so one should look at the adj. numbers instead when comparing quarters. On sales, we were encouraged by the strong product sales, which partly explains the weaker gross margin. On the service side, sales were in line with our expectations, driven by a strong ARPU, as the number of subscriptions was flat q-o-q (ABGSCe +5,000). However, given the strong subscription growth in Q1’22, H1 subscription growth still looks good, in our view, particularly comparing it to 2021 organic numbers. On costs, it looks like the UK continues to explain the pressured underlying margins, but the restructuring program should allow the margin to improve from now. In total, we find the report to be strong on the top line, with a slight bump in the road on profitability.

Estimate changes Given the sales beat, primarily driven by product sales, we raise the ‘22e top line by 2%. On the gross margin, we lower our expectations slightly because of mix effects and higher freight/component costs. However, we believe the gross margin should improve from Q3’22 after the temporary low level in Q2. On costs, we note the 8% sequential adj. opex increase, but remain cautious about fully extrapolating it. In total, we lower ‘22e adj. EBIT by SEK 16m, for a margin of -0.4% (adj. EBITA margin of 2.1%). We keep our top line growth estimates largely intact for ‘23e-‘24e, while we postpone the margin improvement slightly.

Trading at 9x ‘23e adj. EV/EBITA The share was up 3% on the report day. However, YTD, the share is down 57%, resulting in a multiple of 9x ‘23e EV/EBITA.

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