Doro: Headwinds remain from multiple angles - ABG

We forecast Q3 sales and EBIT down 16-80% y-o-y

Strong USD weighs on GM – weak consumer hits top line

We trim our estimates to reflect a more cautious view

Q3’22 report due October 21 – H1 dynamics set to continue
We forecast Q3 sales and adj. EBIT of SEK 227m and 8.1m, respectively, corresponding to a y-o-y sales decline of 16% (of which -18% organic). While the top line still is under pressure, primarily due to the weak general consumer demand, we believe Q3 will improve from Q2 levels both looking at the sequential growth (we estimate +14% q-o-q) and the y-o-y organic development (-18% in Q3e vs -26% in Q2). However, one should also note that Q2’22 came with extraordinarily tough y-o-y comps, while Q3 should see more normalised ones. We expect the underlying gross margin to remain pressured (Q2’22 GM was temporarily boosted by an NRI) given high freight rates and component costs, primarily in SEK given that Doro generally buys inventory in USD. However, like in Q2, lower warranties should provide some support to the GM, and we arrive at 33% for Q3e. On adj. opex, we expect limited changes from Q3 levels, thus arriving at an adj. EBIT margin of 3.6%.

Negative estimate revisions on continued headwinds
Given the uncertainty about when we could see a change in the negative y-o-y sales trend Doro has shown over the last few quarters, we cut our sales estimates to reflect a more cautious view on the outlook. The top-line headwinds remain, in the shape of weak consumer demand, driven by 1) worries among Doro’s customers about the Russian invasion of Ukraine; and 2) a higher cost of living (e.g., due to energy prices and interest rates). Finally, the inventory which will be recognised as COGS over the coming few months remains pricey, but we believe current purchases are being made at slightly lower levels, which should support the GM further ahead.

New fair value range of SEK 14-20, ‘23e EV/EBIT of 4-6x
As we lower our estimates, our value range is adjusted accordingly.
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