Nilörngruppen - Overstocked clients look unfashionable - ABG

Takeaways from the Q4 report
We were surprised by the pace with which the order bookings and the sales decline occurred, as overstocked clients stifled demand for Nilörn's products. With an 18% decline in order bookings as well as a -24% organic growth (albeit from all-time high comps), we estimate that H1'23e will be somewhat weaker and that y-o-y growth in H1'23e could approximately follow that of Q4'22. Nevertheless, there is hope for H2'23e, which not only has easier y-o-y comps but also comes with luxury segment tailwinds.

'23e-'25e outlook
As financial conditions have deteriorated for many retailers, we anticipate some price pressure from clients, and that results in gross margin estimate declines of 40bps for '23e. On the opex side, we believe that the company will return to some form of normalcy (i.e. from full capacity utilisation to normal capacity utilisation) but there is also room to manage both the size of the workforce and certain other opex line items, and we therefore reduce EBIT margins by 40-30bps for '23e-'24e to ~11-12%. Hence, the resulting EBIT estimate cut for '23e-'24e is 15-14%. Furthermore, the company should be able to generate efficiency gains from new investments in Bangladesh and Portugal in the longer term, likely '25e and onward. We expect capex (with above-average inflation expected) to amount to SEK ~40m in excess of maintenance levels. As we have mentioned in previous notes, situations such as these are where one of Nilörn's key strengths come into play: a fortress balance sheet that allows for both investments and dividend payments when times are tougher.

Implied valuation
Our new estimates imply that Niloerngruppen is trading at a '23e EV/EBIT of 10x, which is in line with the corresponding five-year median.

Länk till analysen i sin helhet: https://cr.abgsc.com/foretag/nilorngruppen/Equity-research/2023/2/nilorngruppen---overstocked-clients-look-unfashionable/