Generic: Normalisation, with Q1 on the soft side - ABG

Sales growth of 19% y-o-y, EBIT +10% y-o-y
Revisions stem from Q1 deviation
‘23e EV/EBIT of 26x, 2.9% FCF yield

Q1: Pace of growth is normalizing on tough comps
Generic reported Q1 net sales of SEK 31.9m (+19% y-o-y), which was 3% below ABGSCe as sales deceleration was steeper than expected. It is worth mentioning that comparable figures in 2021 were strong. EBIT was SEK 6.3m (5.7m), corresponding to a margin of 19.6% (18.7%). This was 1% above ABGSCe and the deviation stems from a higher gross margin than expected. We argue that this is likely due to price increases towards customers, especially for Minicall, which should benefit from geopolitical turbulence as it has a strong position in mission critical communications. The number of new business agreements was 106 (96) and the trend remains flat even though Generic has been able to sign larger deals in the last couple of years. The company ended Q1 with a net cash position of SEK 34.4m (26.7m).

Sales and EBIT down 3.8% and 2.6% for ‘22e
We make slightly negative revisions on the back of the Q1 report that mostly stem from the deviation in sales growth in the report. We lower our sales estimates for ‘22e by 3.8% and our EBIT estimates by slightly less. We still think Generic will continue to add opex to a higher extent this year than it did 2021 in order to drive sales growth in the future. It means we expect a y-o-y decline in the EBIT margin to 18.4% in ‘22e, from 19.9% in 2021. The increase in the gross margin in Q1 is comforting as it proves that Generic can handle an increase in operator fees via price increases towards customers.

New client sales will likely benefit from less restrictions
We argue that the slowing growth in Q1 was more of a normalisation from the high activity levels last year and think the company can return to a higher growth rate in ‘23e. The easing covid restrictions will probably have a positive impact on new customer intake, which can be troublesome in a virtual environment as a certain level ...
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