Alcadon - Strong profitability despite headwinds

Q1 EBIT 25% better than ABGSCe We raise ‘21e EBIT by 7% 9. 5x ‘21e EV/EBIT on 29% ’20-‘23e EBIT CAGR Strong Q1 profitability led to EBIT beat Alcadon delivered weaker sales than we expected, but with impressive margins. Sales were SEK 170m, up 30% y-o-y but -7% vs. ABGSCe of SEK 183m.

The miss was a result of weak Swedish and Norwegian markets, still under pressure from COVID-19, supply-chain disruptions, and raw material shortages. However, FTTx demand was better than expected, mainly driven by Germany and Denmark as a result of the acquisition of 6X, and led to a beat of 35% vs. ABGSCe.

Meanwhile, Alcadon had impressive profitability, driven by solid cost control despite the lower than expected sales. EBIT was SEK 16m, up 72% y-o-y and 25% better than ABGSCe at SEK 13m, for an EBIT margin of 9. 5% (7.

2%). The estimate beat was largely due acquisition costs being lower than we expected. Therefore, the adj.

EBIT was SEK 18m, +4% vs. ABGSCe at SEK 17m, corresponding to a margin of 10. 4%.

Increasing our margin assumptions We expect the negative effects of COVID-19, supply-chain disruptions and raw materials to continue to some extent in Q2 but to diminish in H2’21. Therefore, we lower ‘21e sales by 3%. Meanwhile, we leave our organic sales growth estimates for ‘22e and ‘23e unchanged at 8% and 7% respectively.

However, because of the solid gross margins and cost control, we raise EBIT by 7%, 2% and 1% respectively for ‘21e, ‘22e and ‘23e. Trading at 9x ‘22e EV/EBIT, slightly below 3-year average Alcadon is trading at ~9x ‘22e EV/EBIT, in line with its 3-year average and offering a lease adj. ‘23e FCF yield of 10%.

We see an excellent outlook over the coming years, with 29% ’20-’23e EBIT CAGR and potential to add more through M&A given a ‘21e ND/EBITDA of 0. 8x. We reiterate our value range of SEK 30-70 per share.