Probi: A bump in the road - ABG

Q2 saw an unexpected drop in North America
Q2'21 was below expectations, with net sales of SEK 158m (-8.2% vs ABGSCe) and organic growth of -3% (ABGSCe 6%). This stemmed from inventory build-up at an e-com customer and a lost bid for a product renewal. Together, this had a negative impact on revenue in the Americas of SEK 15m (-8% on group). Management expects the e-com volumes to normalise shortly, while the product loss will take longer to recoup. The lower sales coupled with negative product mix hurt the gross margin, which was 40.8% (vs. ABGSCe 45.4%) for the group. EMEA saw healthy growth driven by the launch of recent partnerships, while APAC saw an expected decline vs. a strong comparable quarter. Cost control was solid, and the EBITDA margin was 24.7% (ABGSCe 27.5%).

Continued commercial partnership momentum
Probi’s recent partnership momentum continued with the announcement to launch a ClinBac product with Oriflame, a Swedish-based global beauty and wellness company. It also entered into a strategic partnership and equity investment with Blis Technoliges, a New Zealand-based probiotics company. Probi will license Blis’s clinically proven bacterial strains, which will expand Probi’s range of applications to ear, nose and throat (ENT) and mouth. Production and marketing for both agreements will commence in H2’21, although significant volumes will likely wait until 2022.

37x EV/EBIT ‘22e; 32% above its 2-year average
We cut our sales estimates by 4-5% and EBIT by 19-11%, reflecting the lost product and e-commerce stock buildup. Adjusting for the equity investment in Blis Technologies, Probi ended Q2’21 with a net cash position of SEK 205m, and while our forecasts exclude M&A, we estimate Probi could add ~14-24% to ‘21e EBIT via potential M&A. The share is trading at 37x EV/EBIT ‘22e, or ~32% above its 2-year average and ~37% above key peers’ average.

https://www.introduce.se/foretag/probi/Equity-research/2021/7/probi---a-bump-in-the-road/