Careium: The product sales waiting game - ABG

- Q3: Sales weaker than expected, but solid margins
- We trim sales, but more than offset by a lower opex base
- Share is trading at 9x-7x '25e-'26e EV/EBITA adj.

Product sales materially affected by market delays
Careium delivered soft sales in Q3, with organic growth of -8% compared to 7% in Q2'24. Negative growth was expected, however, as it was communicated by management in the recent FY'24 target revisions, but the magnitude was larger than we expected. Product sales declined by 36% y-o-y (vs. 20% in Q2'24), with the UK and Nordics declining by 33% and 61%, respectively, due to market delays. However, service sales remained healthy and grew by 3% (in line with Q2'24), while the gross margin was a solid 43%, up 1pp q-o-q, driven by a favourable product/service mix. Adj. EBITA was down 24% y-o-y, as Q3'24 presented tough comps with its record adj. EBITA of SEK 25m in Q3'23. Nevertheless, we are positive about the earnings trajectory following the better-than-expected cost control, with an adj. EBITA margin of 9.4% that we find impressive given the sales headwinds.

Low FCF in Q3, but significant improvement y-o-y
FCF was SEK 3.3m, up y-o-y and q-o-q (-9.8m in Q3 '24 and 0.5m in Q2'24). As demand has been soft, decreased product sales and deliveries of rental equipment contributed to the SEK 16m in WC being tied up. As we expect increased demand in '25, this could entail some inventory releases, which should support stronger FCF.

Minor sales cuts, but increased adj. EBITA
We cut '24e-'26e sales by 1.5-1.0% on lower product sales in the UK & Ireland and Nordics, partly offset by increased service sales. On minor downgrades to '24e, we look for 5.4% organic growth in FY'24e, i.e. at the low end of the recently revised target of 5-10%, but raise '24e-'26e adj. EBITA by 10-5% on better-than-expected opex and a touch higher GM. Careium is on track to achieve its FY24 target of an EBIT margin of 7.5-10% (ABGSCe at 9.1%). The share is trading at 9x-7x '25e-'26e EV/EBITA adj.

Länk till analysen i sin helhet: https://cr.abgsc.com/foretag/careium/Equity-research/2024/10/careium---the-product-sales-waiting-game/