Seafire: Strong Q2 and solid H2’22e outlook - ABG

23% organic sales growth Demand remains strong in Q3, margins to improve 7x ’23e EV/EBITA

Sales up 170% y-o-y, adj. EBITA up 198% Seafire delivered strong sales growth of 170% in Q2 (23% organic), primarily driven by higher volumes but also supported by price increases. Both organic and acquired growth were above our expectations, resulting in a 20% sales beat. Adj. EBITA was 12% better than ABGSCe and up 198% y-o-y. However, the margin of 12.5% (11.3%) was somewhat lower than our expected 13.4%, mainly due to a seasonal effect in recently-acquired OPO and SolidEngineer (margin dilution of 120bp on pre-tax profit in Q2’22), which we had not considered. Management says profitability is still dampened by cost inflation and lagging price increases. All portfolio companies increased sales and all comparable units increased earnings. OCF was soft at SEK -29m (SEK 20.3m) due to a NWC buildup of SEK 52m. However, changes in NWC include payments of earn-out (SEK 7.2m) and vendor note (SEK 8.75m).

Solid outlook for H2’22e Following the strong report we raise our ’22e-’24e adj. EBITA estimates by 6%. Management says that the solid demand has continued in Q3 and sees no slowdown in activity. For H2’22e, we expect the group margin to improve, both y-o-y (+9.3pp vs. H2’21) and sequentially (+3pp vs. H1’22) driven by: 1) recent acquisitions being margin accretive, 2) seasonal effect in recently-acquired companies, and 3) additional price increases offsetting cost inflation. Management highlights that the strong cash position of SEK 247m combined with ND / pro forma EBITDA 2.8x (target 3.0x) gives headroom for further acquisitions, something that could add to our estimates.

44% ’21-’24e EBITA per share CAGR The share trades at 7x ’23e EV/EBITA on our updated estimates, 18% below its peer group. We forecast a 44% ’21-’24e EBITA per share CAGR for Seafire, and for EPS to grow from SEK -0.95 to SEK 2.1 during the same period.

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