Ecoclime: Evertherm growth comes at a cost - ABG

Lower margins on installations, product margins stable Near-term cost base re-assessed Fair value SEK 10-17 (11-18), 13x ’23e EV/EBITDA (adj.) Installation services and expansion costs weigh on margins Ecoclime reported Q2 sales of SEK 57m (-13% vs. ABGSCe of SEK 66m), with organic growth of 9.6% (ABGSCe 9.0%). The gross margin decreased substantially, which to our understanding is mainly due to installation services underperforming, while product margins remain stable, which is an important distinction as Ecoclime’s strategic focus is on growing product sales while scaling down the installation business. Also, opex increased more than we expected, which the company attributes to investments in Evertherm, resulting in an adj. EBITDA of SEK -4.3m (ABGSCe SEK 5.8m) and EBIT of SEK -13.3m (ABGSCe SEK 1.0m).

Cost base raised, mostly for ’22e-’23e We lower our adj. EBITDA estimates by 28% (or SEK -16m) for ’23e and 6% (or SEK -4m) for ’24e on raised cost assumptions for both COGS and opex. In the near term, installation services will likely continue to weigh on gross margins, which we lower significantly for H2’22e but assume will improve in ’23e. As for opex, the cost base will likely continue to grow in the coming quarters to facilitate the rollout of Evertherm.

Evertherm rollout still on track Assuming an ASP of SEK 2.5m per Evertherm system, our current estimates imply that Ecoclime has sold 12 systems in H1, and we estimate another 13 in H2. We note that since product margins have been more stable than installation margins, we still see strong earnings growth potential from scaling up the Circular Energy business. Finally, given our estimate revisions, we lower our fair value range to SEK 10-17 (11-18) per share.

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