Svedbergs: Flat EBITA y-o-y despite headwinds - ABG

- UK compensates for soft Swedish market
- Announces potential next step in M&A strategy
- We raise our fair value range to SEK 32-47 (31-46)

Q3 in brief: flat y-o-y despite tough market
Svedbergs delivered a Q3'23 that was strikingly similar to Q3'22, supported by FX. Net sales of SEK 432m corresponds to -0.7% growth y-o-y (-8% org.). This was slightly above our SEK 426m estimate. Gross margin improvements (+3pp y-o-y) from Roper Rhodes' price increases offset higher opex, as the group increased sales investments. The resulting EBITA margin was 13.7% (+20bp y-o-y), for EBITA of SEK 59m (+0% y-o-y). The group also announced the next step in its acquisition strategy, having signed an agreement to purchase Dutch bathroom furniture supplier Thebalux. The effect on '24e could be ~20% on net sales and ~35% on EBITA. We estimate the acquisition could thus be accretive on both margins and EPS (conditional on terms in the announced Q1'24 rights issue, conditional on AGM).

Positive mix effects on EBITA from Roper Rhodes
Seeing soft macro data and a slowdown in momentum for the Svedbergs brand, we have lowered growth estimates. Roper Rhodes (58% of LTM group net sales and 65% of EBITA) keeps outperforming both the group and the UK market, and price increases mean we raise the gross margin for the group. The net effect is slightly negative on the top line, as we lower '24e-'25e net sales by 2%, but the higher share of Roper Rhodes in the mix means profitability estimate changes are higher. We raise margin estimates for '24e-'25e by 50bp, for 2% higher EBITA for each year.

Trading below historical 7-11x EV/EBITA
The share is trading at 6x-5x '23e-'25e EV/EBITA. After making only limited estimate revisions, we raise our fair value range to SEK 32-47 (31-46) corresponding to 6x-8x '24e EV/EBITA compared to a 10y one-standard deviation span of 7x-11x NTM EV/EBITA (lower than the historical trading range to account for the uncertain outlook and interest climate).