Dist IT: Starting its M&A agenda with a bang - ABG

Muted off-season quarter with limited impact on full year
DistIT delivered relatively soft results with an adj. EBIT margin no higher than that achieved in a very challenging Q2’20. However, the accretive acquisition of EFUEL overshadows this. Sales in the quarter came in at SEK 545m, up 8% y-o-y and 1% better than ABGSCe. Septon drove the positive deviation, as volumes for the segment were 29% better than we expected and up 40% y-o-y driven by strong consumer demand. Own brands grew 8% and are still at 26% of group sales. The gross margin fell to 21% (22% in Q2’20 and Q1’21) driven primarily by a worse product mix. This, combined with a slight ramp-up of opex to manage the European expansion, led to adj. EBIT of SEK 5m, up 16% y-o-y and 8% better than ABGSCe.

Transformative acquisition of EV charging company EFUEL
As noted, the transformative acquisition of EFUEL is more important than the Q2 results and is the reason we raise EBIT by 9-23% for ’21e-‘23e. EFUEL is one of Sweden’s largest companies within electrical vehicle charging boxes, as it has a market share of c. 30%. EFUEL is expected to have sales of SEK 120m in ’21 with EBIT margins of at least 10%, and management expects the company to grow sales by 70-100% per annum in the coming years. However, we’ve taken a more cautious view, assuming 67% growth in ‘22e and 50% growth in ‘23e as our in-house analysis of EV chargers points to a c. 30% CAGR in ’20-‘25e. The transaction price is c. 15x EBIT, assuming a 10% margin, with 75% of the transaction paid with DistIT shares, leading to an EPS dilution of c. 12%. This leads to a -11% EPS revision in ‘21e, +1% in ‘22e and +11% in ‘23e.

9x ’22e EV/EBIT with an EBIT CAGR of 36% in ’20-’23e
The acquisition of EFUEL sets the tone for DistIT’s new M&A agenda and results in an EBIT CAGR of 36% in ’20-‘23e. Despite the fact that the share is up 168% over the past year, the valuation of 9x EV/EBIT in ‘22e continues to look reasonable. We estimate that DistIT will have 0.3x ‘22e lease adj. ND/EBITDA, translating into c. SEK 1.5bn in M&A firepower, able to support >200% EBIT growth until ‘25e, on top of organic growth.

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