Generic - Exceptional start to the year
47% sales growth y-o-y in Q1 Sales on another level, positive revisions ‘22e EV/EBIT of 23. 6x, div yield of 2. 7% Q1: Well above expectations on both growth and margins Generic reported stellar Q1 numbers with net sales of SEK 26. 9m (SEK 22.
3m), corresponding to y-o-y growth of 47%. That was 20% above ABGSCe at SEK 22. 3m (22% y-o-y growth).
There is only one explanation to the deviation and that is that the customer agreements signed during H2’20 were with significantly larger customers than what Generic has managed before, leading to higher messaging volumes. As a consequence, the gross margin declined as the proportion of fixed fees declined. In Q1, the gross margin was 48.
3% (54. 9%), we had forecast 52%. Despite the lower gross margin, the EBIT margin of 21.
2% (14. 6%) was higher than we expected. The y-o-y margin improvement was driven by higher sales and an opex fall of 1.
7% y-o-y, resulting in an EBIT of SEK 5. 7m (up 112% y-o-y). Low churn means deviations can often be extrapolated As Generic pursues a CPaaS business model, where we assume a low churn, sales have followed a seasonal pattern and increased as new customers are added.
We think Generic has reached a new sales level following the Q1 report and make substantial upgrades to our current estimates with sales up ~15% and EBIT up 24-17% for ‘21e-‘23e. The profitability in Q1 surprised us positively, however, we do believe Generic needs to add additional employees at some point in order to continue its growth journey. Therefore, we think that the y-o-y opex decline in Q1 is temporary.
The higher sales estimates come with lower gross margins, but also lead to scalability on our opex forecasts, which is why we increase our long-term EBIT margin to 19. 4% (18. 9%).
More to look forward to in Q2 Going into Q2, we are excited to see what the deal with the Swedish Social Insurance Agency will bring as it was only operational for the later stages of Q1. On our revised estimates, Generic is trading at a ’2.
