Careium: Holding out for H2 acceleration - ABG

- Q2: stable top line despite headwinds, margins keep improving y-o-y
- Tweaked '24e, as we look for 15% adj. EBITA CAGR
- Share is trading at 10-7x '24e-'26e EV/EBITA adj.

Market headwinds continue, but earnings keep improving
Careium delivered solid sales despite UK A2D and Swedish 2G shutdown delays, with 7% organic growth, compared to 8% in Q1'24. In line with mgmt's communication, we expect growth to pick up in H2 on somewhat recovering demand, as well as easier comps (particularly in Q4). On minor upgrades to '24e organic growth, we keep looking for 12% in FY'24e, i.e. at the low end of the recently reiterated target of 12-15%. Product sales grew by 20% y-o-y (vs. 8% in Q1'24 and -11% in Q4'23) on improvements in the Nordics and Other regions, while service sales were softer than usual, with an increase of 3% (12% in '23), on a decline in the UK (-11% y-o-y) and a soft Nordics performance (5% vs. 13% avg.), likely due to the market headwinds mentioned above. The GM was solid at 41.7%, but down 1.2pp q-o-q, mainly on increased freight costs. Adj. EBITA kept its strong growth, up 22% y-o-y, for a 10.4% margin (vs. 9% Q2'23), supported by a slight opex decrease of 2% y-o-y.

Weak FCF on inventory build-up
FCF was SEK 0.5m, which is both a y-o-y (-7m) and a q-o-q (-16m) decline. As demand has been soft, the inventory build-up in the quarter contributed to SEK -21m in tied up WC. As we expect somewhat increased demand in H2, this could entail some inventory releases, which should support stronger FCF.

Minor adj. EBITA revisions, but FVR slightly up
We trim our '24e-'26e service sales estimates by 0-1% on cuts to UK & Ireland and Nordics, while we raise product sales for '24e-'26e by 2-7%, mainly on significant increases in Other regions. Our adj. EBITA estimates are largely unchanged, but we upgrade our FVR to SEK 23-38 (21-36) as we argue the risk level has come down following the solid execution, proving sustainable margins. The share is trading at 10x-9x '24e-'25e EV/EBITA adj.

Länk till analysen i sin helhet: https://cr.abgsc.com/foretag/careium/Equity-research/2024/7/careium---holding-out-for-h2-acceleration-/