Embellence Group: Showing off the industry-leading factory - ABG

- Net sales SEK 191m, 3% vs ABGSCe, 2% vs Factset cons.
- Adj. EBITA SEK 21m, 19% vs ABGSCe, -2% vs cons.
- Share trading at 8x-7x '24e-'25e EV/EBITA

Q2 in brief: Boråstapeter Tapetfabrik outperformed
The report is stronger than consensus estimates in general. Net sales of SEK 191m is +12% y-o-y (12% org.), and is 3% above ABGSCe and 2% above Factset cons. By brand, Boråstapeter's sales grew by 6% y-o-y, Cole & Son by -3%, Wall & Decó by 2%, Artscape by 20%, Pappelina by 4% and External manufacturing sales grew by 107%: external manufacturing was the clear reason for the sales beat in the quarter. Gross margins were 60.2%, 120bp lower y-o-y on product mix changes, but significantly better than ABGSCe. This is likely an effect of great capacity utilisation in external manufacturing. With 3pp savings in the SG&A ratio from sales leverage, the gross margin decline did not dictate the EBITA margin which was +0.2pp y-o-y. The resulting EBITA of SEK 21m (margin of 11%) was 19% vs ABGSCe and -2% vs Factset cons. FCF was SEK 43m vs ABGSCe SEK 37m, as customer recievables normalised. We believe the recievables spike in Q1 is likely to be related to Artscape's relaunch with a large customer.

Outlook: markets gradually improving
Embellence comments sales performance by brand, and we note a repeated focus on hospitality sales when we go through the commentary. We note as well several instances of strong sales to the US. The CEO is highly optimistic on the market development forward, stating that the company assessment is that the markets are gradually on the road to recovery.

The share is trading at 8x-7x '24e-'25e EV/EBITA
Using yesterday's share price and unrevised estimates, Embellence is trading at 8x-7x '24e-'25e EV/EBITA vs a historical trading range of 5-9x NTM. It has been strong L3M with a performance of 43%. Continued strong Borås Tapetfabrik (External manufacturing) performance could drive consensus estimates upward. Embellence hosts a conference call today at 10:00 CET.

Länk till analysen i sin helhet: https://cr.abgsc.com/foretag/embellence-group/Equity-research/2024/7/embellence-group---showing-off-the-industry-leading-factory/