Enzymatica: Negative trend straining the cash position - ABG

Sales still held back by inventory build-up at distributors
Weakness to continue in Q2 but potential for H2
SEK 20m in quarterly opex and SEK 28m in available funds

Concerning sales growth
Enzymatica reported another weak quarter with Q1 sales coming in at SEK 4.2m (ABGSCe SEK 17m) for a 75% y-o-y decline. The company continues to be impacted by customers holding off placing orders, as it is working down excess inventory that was built up during the pandemic. However, we are also concerned about the development in underlying demand, as the Swedish pharmacy market for cold remedy products declined 27% in Q1, breaking the positive trend seen in Q4. Enzymatica’s market share in Sweden has now declined to 4.6% on a rolling 12m basis, from highs above 7%, which the company attributes to a recent shift from preventive to symptom-relief products. The gross margin was 53.9% and opex SEK 21m, which drove an EBIT loss of SEK 18m.

Still potential for 2022 but continued weakness in Q2
Despite the weaker numbers, Enzymatica continues to believe that 2022 could be a good year and the company reiterates its long-term sales target of SEK 600m in 2026. However, it also says that it expects sales in Q2 to continue to be impacted by the high inventory levels at distributors. We believe the ongoing development is concerning and consequently we lower our sales forecast for ’22e to SEK 96m (prev. 121m), with most of the sales coming in H2. We also cut sales for ’23-‘24e by 7% on the higher uncertainty given the current trend.

Balance sheet looking stretched
Enzymatica ended the quarter with a cash position of SEK 20.3m, with another SEK 0.8m in unutilized credit facilities and SEK 7m that could be released from factoring, so it looks like the current available funds are SEK 28.1m. With current quarterly opex around SEK 20m (cash) and a limited forecasted sales contribution in Q2, the balance sheet looks stretched.
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Länk till analysen i sin helhet: https://cr.abgsc.com/foretag/enzymatica/Equity-research/2022/5/enzymatica---negative-trend-straining-the-cash-position/