Embellence Group: Rolling up for uncertain times - ABG

Q2 sales in-line, adj. EBITA below (-16% vs ABGSCe) Adj. EBITA estimates down 17-7% ’22-‘24e Value range lowered to SEK 31-42 (33-44) per share Q2: volumes holding up, SG&A hurting margins
Embellence entered Q2 facing tough comps alongside decreasing demand due to surging inflation and macroeconomic worries. Management highlighted that e-commerce customers are displaying low volumes and high inventory levels, but that the re-opening of physical retailers is compensating to some extent. The consumer-centric brands Pappelina and Artscape are said to have been the most exposed to the negative consumer sentiment. On a positive note, the Boråstapeter, Cole & Son and Wall & Decó brands held up relatively well due to their exposure towards hotels, restaurants and public spaces with pent-up demand following the pandemic. All in all, sales came in at SEK 190m in Q2 (+19% y-o-y, -4% org.). Adj. EBITA came in at SEK 24m, yielding an adj. EBITA margin of ~13% (-2.3pp. vs ABGSCe). The lower margin stems from: 1) a negative product mix in the Nordics, 2) increased input costs and 3) larger investments into sales and marketing.

Outlook: cost savings in a turbulent market While we expect continued slower demand with less intention to renovate in the market, we continue to view the hospitality segment as a supporting factor for future growth. To our understanding, higher investments in marketing and sales can be expected ahead as well, as the new market dynamics require it. Nonetheless, the announced cost savings programme focused on the Nordics will help to compensate this. On the whole, we leave sales estimates relatively unchanged going forward (-1% ’22-‘24e) and lower the adj. EBITA with 17-7% for ’22-‘24e.

Share trading at EV/EBITA adj. of 8x-5x in ‘22e-‘24e On the back of our estimate revisions, we lower our value range to SEK 31-42 (33-44) per share. This translates into an EV/EBITA adj. range of 6x-8x on ’23 estimates.

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