Seafire: Unfortunate quarter, look to H2 for the light - ABG

EPS delivery delayed until Q3 due to Linguacom bankruptcyExpect less of a peak in Q2 as seasonal effects diminishTrading at 10x '24e P/E vs. peers at 19x, fair value SEK 25-35

Q2e: consumer headwinds and tough compsIn Q2, we expect sales of SEK 290m, up 2% y-o-y (-10% org., +2% FX, +10% M&A). We anticipate a drop in organic growth due to continued headwinds in the consumer-oriented businesses, tough comps, as well as the expectation of less seasonally dependent sales going forward, which has a relatively higher negative effect on Q2 as it has previously constituted the seasonal peak of the business group. We expect organic growth to continue in Q3-Q4. The negative contribution from the Linguacom bankruptcy is included in the +10% M&A growth figure. We estimate EBITA of SEK 28m (34m) for a margin of 9.7% (11.9%), down y-o-y for the same reasons as the drop in organic growth, as well as a negative currency effect from the strong EUR. The quarter will contain a financial one-off expense of SEK -23.6m related to the Linguacom bankruptcy. This expense does not affect cash flow. A dialogue between Seafire and its insurer concerning potential cost coverage is still in progress. This one-off expense makes up the main difference between our SEK -0.16 EPS and +0.37 adj. EPS estimates.

Estimate cuts on Linguacom bankruptcyFollowing the Linguacom bankruptcy, but also to some extent the continued weakness in the consumer businesses, we reduce '23e-'25e sales by 7-8% and EBITA by 17-10%. Despite this, we reiterate our positive outlook on the company as it puts the Linguacom debacle behind itself in the Q2 report, and likely begins delivering substantial EPS in Q3, as a result of the refinancing completed in Q1.Trading below peers despite better estimatesThe share is down 29% YTD and is currently trading at 10x '24e P/E vs. the median of 19x for similar-sized peers, despite higher sales growth and margin expansion estimates. We reiterate our fair value range of SEK 25-30.

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