Christian Berner Tech Trade: Building inventory to deliver on order backlog - ABG

Organic sales growth of 10.5% vs. ABGSCe of 5.7% Temporary gross margin pressure in H2’22e… …but optimistic signs of a return to M&A Good organic growth and order intake, but soft OCF Activity in CBTT’s market remains good, illustrated by 10.5% organic sales growth and the R12m book-to-bill increasing to 1.05 in Q2 ’22 (1.03 in Q1’22). Sales were SEK 214m, up 15% y-o-y. The adj. EBITA margin improved by 1.1 pp y-o-y, resulting in a 45% y-o-y growth to SEK 11.6m, below our expectations of SEK 15m. The EBITA was burdened by costs incurred in connection with an investment in a new ERP system, although the amount was undisclosed. Given the strong order backlog and constraints in supply chains, management has intentionally during the quarter built a larger inventory, now 14% of R12m sales (~9% L5Y avg). Consequently, operating cash flow was soft in Q2 at SEK -3.5m (adjusting for payments of earn-outs included in NWC), compared to SEK 16.5m in Q2’21.

Management seems upbeat about M&A potential We lower our ‘22e adj. EBITA estimate by 17% due to the estimate miss in the quarter and lowered margin assumptions for H2’22e. Management says CBTT will likely see some temporary pressure on the gross margin, as it cannot fully compensate extra costs with price increases. On the positive side, management highlights that it intends to increase the acquisition pace in the future, although it highlighted some difficulties in agreeing with sellers on price levels at the moment. Given the latter, combined with a ‘22e ND/EBITDA of 2.3x, we expect it will take until ’23 before dialogues with potential sellers converts into actual M&A. This provides an upside to our estimates since we do not include unannounced acquisitions in our forecast.

Trading at 11-7x ‘22e-‘24e EV/EBITA The share trades at 11-7x ‘22e-‘24e EV/EBITA on our updated estimates and we forecast a 24% ’21-‘24e adj. EBITA CAGR.

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