Goodbye Kansas Group: Eventful quarter and a renewed focus - ABG

Project postponements carry significant impact

We reduce sales estimates by 11-12% for ‘22e-‘23e

A reset is coming through restructuring and rights issues

Q3 in brief
Due to postponements across GBK’s project portfolio, Q3 net sales came in 41% below our expectations, and implied a 31% y-o-y decline. Since GBK has a relatively large, fixed cost base, the company generated EBITDA that was approx. SEK 31m below our expectations. This has ultimately strained the financial position of the company, and therefore the board has proposed two larger equity issues – one to remedy the indebtedness and another to recapitalise the business.

Going forward
A few significant changes have been announced with respect to both the operations and the financing of the business. A meaningful cost optimisation program entailing some SEK 15-20m annually has been announced along with some divestments following a comprehensive set of strategic reviews. Based on the recent circumstances as well as the announced action plan, we have cut our sales estimates by 11%, 12% and 5% for the years ‘22e, ‘23e and ‘24e, respectively. We have, however, increased our expectations for the EBITDA margin that can be achieved given the proposals, and assess that a ‘24e EBITDA margin of ~9% can be achieved given the current operating structure. The delayed launch of Hello Kitty as well as project postponements will adversely impact the company in the shorter term, but we believe that prospects for H2’23e and onward look more stable. Moreover, a focus on only the Studios business should benefit the business from an operating point of view and ultimately lead to a path of profitability over the longer term.

Implied valuation
The rights issues imply a post-money valuation, before transaction costs, of approx. SEK 133m, given a maximum dilution of ~91%. This would, in turn, translate into a ’23e EV/sales ratio of 0.4x.
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