Garo: Strong quarter, markets and margins bode well - ABG

Q2 EBIT of SEK 55m (+18% vs. ABG, +25% vs. cons)
’21-’23e EBIT up 15-20%, positive on outlook
30.6x ‘22e EV/EBIT on strong market momentum

GARO turned in a good Q2 report, with sales of SEK 341m (14% vs. ABGSCe, 16% vs. FactSet cons), up 43% y-o-y (43% organic). The sales deviation was largely from a favorable product mix, volume improvements in E-mobility (+88% y-o-y, +28% q-o-q) and in Electrical Distribution Products (+27% y-o-y, +20% q-o-q). Group EBIT was SEK 55m (18% vs. ABGSCe, 25% vs. cons), for a margin of 16.1% (ABGSCe 15.6%, cons 14.9%), up from 12.7% in Q2’20 and from 15.8% in Q1’21. Net profit was SEK 43m (24% vs. ABGSCe, 33% vs. cons). GARO managed to successfully secure materials supplies in Q2, but management highlights that uncertainty remains concerning access to raw materials and components. However, this will be offset by price increases for customers and a higher inventory build-up. Operating cash flow was SEK 6m (11m in Q2’20), as the higher earnings were offset by higher capital tied up in component inventories from strategic purchases to secure materials supply, which we view as reasonable.

End markets remain very strong, and we expect the company to execute well on the favorable market momentum, which should drive a 27% EBIT CAGR in ’20-‘23e. GARO has traded strong into numbers (+36% L1M) and is currently trading at 31-26x ’22-23e EV/EBIT.

Länk till analysen i sin helhet: https://www.introduce.se/foretag/Garo/Equity-research/2021/8/garo---strong-quarter-markets-and-margins-bode-well/