Midsona: Back on track? - ABG

Price hikes and cost savings the theme in Q1
Confident message regarding debt levels
We raise our ‘22e EBITDA by 3%

Q1 report in brief
Midsona’s Q1 report was soft, but it showed better profitability than we had feared. Sales declined by 5% organically, to SEK 972m, which was 3% below our SEK 1,001m estimate. Management said that while February was weak, sales bounced back strongly in March. The first weeks in April were said to have shown growth. We assume this is total growth and not organic growth. On profitability, EBITDA was SEK 62m, relatively in line with the Q4 report despite price hikes having aided the gross margin by 2.2pp sequentially, showing how margin-dilutive the current environment is. Consequently, the company has taken several measures to return to satisfactory profitability.

Measures taken to protect profits
Because of the difficult climate, the company plans more significant price hikes, which it said should greatly help Q3 margins. Management said that with the current corporate structure, a satisfactory gross margin would be around 28%, up 2pp from today. The company has also initiated a cost-saving program related to opex. It says the program would be fully visible in the numbers from H2’23 and is aimed at saving c. SEK 40m. After the Q1 report, we raise our estimates for the first time since the Q4’20 report. In the short term, we expect Q2 to be similar to Q1 on EBITDA, with the war-related cost inflation offsetting the underlying profitability improvements. For H2, the price hikes should aid the return to historical margins, with a subsequent significant margin expansion. We are not ready to pencil in the full 28% gross margin yet, and we assume that parts of the cost savings will be reinvested in growth. We view the two factors more as increasing estimate visibility. In total, we raise EBITDA by 3-0% for ’22-‘24e.

Trading at 17x-10x EBITA ‘22e-‘24e
On our updated estimates, the share is trading at 17-10x EBITA for ’22-‘24e, below its historical ...
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