DistIT: Supercharged EFUEL growth continues - ABG

Higher-than-expected opex turns EBIT negative

Dividend postponed and timing under review

Share trading at ’23e-‘24e EV/EBIT 7-5x

Challenging macro situation affecting costs
Like most retail electronics businesses, DistIT faced a challenging macro environment in Q2, with sales declining by 4% y-o-y organically. The decline was also due to the cancellation of a relatively important distribution contract within batteries. DistIT says that the loss will be offset by new in-house and external products that should help lift margins over time. It also suffered from FX headwinds, with its main sales currency of SEK down vs. the (mostly Asian) currencies used to purchase goods. While the EBIT margin for this quarter was negative, it is essentially at a break-even level on an adjusted basis. On a positive note, EFUEL grew faster than expected at 158% y-o-y, beating ABGSCe by 53%. This builds further conviction in the long-term case. However, we note that the likely earnout payment of SEK 140m when EFUEL reaches SEK 70m R12 gross profit could happen sooner than expected, perhaps as early as Q1’24. While EFUEL growth is great, we think it could be challenging to handle the payment that early. Finally, we note that the board has postponed the dividend and aims to have a decision regarding its distribution based on early Q4 performance. We deem this prudent given the current market and industry circumstances.

New endeavours look set to outperform
We anticipate that some cost hikes will be partly remedied by declining transportation and raw material costs in Q3. Regardless, Q2 shows that cost control is challenging. EFUEL, however, has highlighted the significant growth potential that it brings to the table, and the recent performance affirms the EV charging growth story. While we slightly reduce both our sales and EBIT estimates for 2022-23e, we upgrade our ‘24e EBIT on significant estimate upgrades in the EFUEL segment.

Short-term challenges not extrapolated long-term Based on our up ...
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