Seafire: Putting more coal on the fire in Q2 - ABG

A strong start to FY’22, as expected
‘22e-‘24e adj. EBITA up 6-11% on M&A
M&A headroom for ‘22e indicates 30% upside to est.

Strong organic growth streak continues
As expected, sales growth was strong in Q1, at 120%, and the organic contribution of 21% (+30% in Retail & Services and 9% in Industry) was better than our estimated 6%, with Nordbutiker and Linguacom as the main drivers. Cost inflation and component shortages continued to weigh on profitability, resulting in a adj. EBITA margin of 6.8% (7.3%), with Thor Ahlgren seeming to struggle the most. Sales were SEK 168m (9% better than expected) and adj. EBITA was SEK 11.4m, or 15% below expectations. We believe the SEK 2m deviation on adj. EBITA was partly due to us underestimating the impact from cost inflation, but mainly due to a muted quarter for DOFAB, which has volatile earnings q-o-q (timing effect). Management says that order intake for DOFAB is strong and that volumes and margins should improve.

Management says Q2 has started strong
We raise ‘22e sales and adj. EBITA by 11% and 9% and ‘23e and ‘24e sales and adj. EBITA by 15% and 11%, respectively, following the acquisition of SolidEngineer. Management says Q2 has started strong and expects improvements in companies such as Thor Ahlgren and DOFAB; however, it highlighted cost inflation and component shortages will continue to pose challenges. After the acquisition of SolidEngineer (EV of SEK 85m), we estimate a ‘22e ND/EBITDA of 2.2x (including leasing and earn-outs). An increase in the ND/EBITDA to 3.5x would generate M&A headroom of SEK 160m, which could add ~30% to our ‘22e EBITA estimates given multiplies of 7x. Therefore, despite three larger acquisitions YTD, we still believe that the balance sheet allows for at least two additional acquisitions this year.

10x ‘23e EV/EBITA
The share is trading at 13-10x the ‘22e-‘23e EV/EBITA. We have updated our M&A scenario and find that Seafire has the pipeline, organisation and headroom to sustain a 30% (10% organic, ...
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