Ecoclime: It's time to Ecoclimb - ABG

Growing in the right segments...
...with more stringency on costs
Demand holding up despite uncertain market

Circular Energy +51% vs. ABGSCe, opex flat q-o-q
Ecoclime delivered a strong set of numbers. Q2 sales were +32% vs. ABGSCe with the beat stemming mostly from Circular Energy (CE), which was +51% vs. ABGSCe on sales and Smart Properties (+28%) – the two segments that are expected to be the main long-term earnings drivers. Moreover, unlike previous quarters, sales growth came without growing the opex base. In fact, we are seeing early signs of new CEO Krister Werner's cost-cutting measures, with personnel costs coming down notably q-o-q. This was a result of: 1) the H-Gruppen divestment, and 2) letting go of several consultants. As a result, EBIT is now almost back to positive levels at -0.3m (ABGSCe -5.2m). The weak point of the report, however, was that cash flow lagged as significant working capital was tied up.

Sales raised by 9-5%, driven by Circular Energy
We raise our sales estimates by 9-5%, which is mainly from CE. Given that we also expect CE to have higher margins than the group as a whole over time, along with the Q2 numbers giving us more confidence that there will be stringency on costs going forward, we revise margins upwards. All in all, '23e-'25e EBIT comes up by SEK 5-11m.

Some clouds on the horizon, but demand remains solid
In its outlook statement, the company flags for an uncertain market environment given a near-complete stop in newbuild activity. Given that Evertherm penetration in existing multi-unit dwellings is still very low, however, we believe that Ecoclime still has a long growth runway excluding installations in newbuilds. Moreover, the Q2 numbers show that energy efficiency solutions such as Evertherm are still sought after, even in a weaker macro environment.

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