Össur: Solid Q3 in sight - ABG

Q3 report due Tuesday, 24 October
Q3e: solid 6% org. growth and continued margin pressure
Fair value ranged narrowed to DKK 28-44
Q3 results

Ossur will release its Q3 report on Tuesday, 24 October. We expect it to largely focus on the same themes as Q2, i.e., healthy growth generation while cost pressures continue to hamper profitability and leverage weighs on revenue growth. We estimate Q3 sales of USD 197m (+12% y-o-y) for 6% organic growth, USD 33.5m EBITDA (pre-items), EBIT of USD 21.5m and EPS of USD 3.6c. We expect quarterly growth to again be driven by Prosthetics on the back of the continued roll-out of the updated Power Knee.

Key themes for Q3
We are focused on the following factors into the Q3 results: 1) Ossur guides relatively narrowly for 7-8% organic sales growth, but widely for its EBITDA margin (pre-items) at 17-20%. We are inside the guidance ranges for both values and expect Ossur to narrow the EBITDA margin range; 2) Ossur exited Q2 with a reported USD 410m in net debt and 3.1x net debt/EBITDA (pre-items) leverage, i.e. outside the targeted 2.0-3.0x range. Cash flow generation in H1 was impacted by inventory build of bionics components. Ossur expects inventories to "gradually normalise", which we will monitor to gauge the firm's ability to perform M&A and balance sheet actions; 3) Ossur guidance implies a margin uplift in H2 vs. H1. We expect this to be helped by both a higher absolute top-line and lower input costs, e.g. freight, along with some help from FX. We will pay special attention on what Q3 tells us about the margin trajectory into '24e, where we assume a ~190bp EBIT margin uplift vs. 2023e.

Fair value range narrowed to DKK 28-44
Following a change of analyst we implement a new valuation approach containing two scenarios. The first involves '24e P/E at 20x, reflecting this metric's five-year low, while the second has '24e P/E at 30x, reflecting its average. From this, we derive our new fair value range of DKK 28-44. Läs mer på ABG Sundal Collier

Länk till analysen i sin helhet: https://cr.abgsc.com/foretag/ossur/Equity-research/2023/10/ossur---solid-q3-in-sight/