Össur: Lowly Q1 on the cards; healthy fundamentals - ABG

- Embla (name change from Ossur) reports Q1 on 23 April in morning
- Solid start to 2024 with 5% Q1e organic growth, held back by tough comps
- Estimates 1-2% down on FX, FV reiterated at DKK 25-37

Q1 due 23 April in the morning
Embla Medical (formerly named Ossur) will report Q1 on Tuesday 23 April in the morning. We forecast group revenues of USD 199m on 5% organic growth and 10% reported growth. We expect a 20bp y-o-y gross margin lift to 62% and 5% opex cost growth, leading to adjusted EBITDA of USD 35.8m (reported EBIT USD 22.3m) for an 18.1% margin and 27% y-o-y growth. We estimate Q1 net profit of USD 14.7m.

Key points into report
1) We expect organic growth to drop from 9% in Q4 due to tougher comps (+11% in Q1 vs +3% in Q4), the timing of Easter (3 fewer sales days) and a less positive pricing environment and as Q4 was helped by unusually high growth in Patient Care of 12% (8% FY'23) and a positive high-end product mix. We forecast 5.5% organic growth in Q1, with sequential improvements through 2024. 2) Q1 is first quarter with the acquired FIOR & GENTZ business; we expect no major disruptions from this in Q1. 3) We are in the middle-to-lower end of Embla's 2024 guidance, as we expect 6.2% organic growth (guidance: 5-8%) and a 19.2% EBITDA margin (guidance 19-20%). With a Q1 at the low end of Embla's full-year guidance, we would see it as too early for a narrowing of the guidance range. 4) We expect to hear little news about what is likely to be the most important share price driver in 2024: the proposal to expand Medicare reimbursement for microprocessor knees to K2 amputees. We will be looking for whether the proposal may impact demand patterns already now.

Long-term earnings compounder
We make no changes to our fundamental estimate assumptions into the Q1 report, but FX lowers our forecast by 1-2%. We maintain our 20-30x 2024e P/E valuation range framework for Embla, which leaves us with an unchanged fair value range of DKK 25-37.

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