Svedbergs Group: Geographical diversification keeps paying off - ABG

- Strong momentum outside Sweden
- We lower '24e-'25e EBITA by 2-1%
- Share trading at 9x '24e EBITA vs. hist. avg. 7-11x NTM

Takeaways from the Q2 report: Svedbergs brand remains soft
The main deviation from Factset consensus estimates was the Svedbergs brand, which delivered -22% organic growth in the quarter. This is in line with Q1, but on a 16pp easier growth comp. The lower sales figure meant capacity utilisation in the factory was lower, and EBITA margins were a mere 1% (-9pp y-o-y). In response, the company announced cost cuts in personnel, which we expect to have an impact of around 2-3m per quarter from Q3. Roper Rhodes outgrew the UK market (most recent CPA forecast -4% y-o-y) with 6% organic growth y-o-y. Gross margins remain strong (+2pp y-o-y) on Roper Rhodes' price hikes, and appear to have stabilised at a new higher level.

Outlook: non-Sweden business sprints ahead
Despite seeing continued strong momentum for segments outside the Nordics, we lower our organic growth estimates for the Group by 170 bp for '24e, driven by the Svedbergs brand. Positive M&A and FX, meanwhile, result in 1% higher '25e-'26e sales. Lower gross margins from lower capacity utilisation in the Dalstorp factory and Roper Rhodes staff cost inflation mean we lower '24e-'26e EBITA by 2-1%. Q2 is the second full quarter of Thebalux being consolidated in the Group, and it did not disappoint with 7-8% organic growth (management estimate) and a 26% EBITA margin. We believe this highlights Svedbergs Group's M&A proficiency. At a ND/EBITDA of 1.7x with strong owner support, Svedbergs Group could likely continue consolidating the European market.

Trading at 9.1x '25e EBITA compared to historical 7-11x NTM
The share is trading at 9.1x-8.2x '24e-'25e EV/EBITA. After making negative EBITA revisions (2-1% for '24e-'26e), we lower our fair value range to SEK 39-55 (40-56) corresponding to 8x-10.5x '24e EV/EBITA vs. a 10y one-standard deviation span of 7-11x NTM EV/EBITA.

Länk till analysen i sin helhet: https://cr.abgsc.com/foretag/svedbergs/Equity-research/2024/7/svedbergs-group---geographical-diversification-keeps-paying-off/