BHG Group - Closed the year in style

Organic growth of 36% Directed share issue could add c. SEK 1. 5bn Valuation range raised to SEK 87-222 (83-209) Extraordinary organic growth across the board BHG reported Q4’20 sales 6% above our estimates, including 36% organic growth (versus ABGSCe 25%). The large beat stemmed from a stronger organic growth in DIY, which reported organic growth of 39%.

Furthermore, the DIY division posted a staggering 190% adjusted EBIT growth, resulting in a total adj. EBIT growth of 116% for the Group. The Home Furnishing segment grew by 35% (30% organic) to SEK 923m, in- line with our estimates.

The fastest-growing category within the segment was interior design and lighting. AOV decreased 11% y-o-y, driven by a change in product mix combined with negative FX. BHG is currently benefitting from a strong home improvement market and the underlying channel shift to e-commerce, which has accelerated further due to COVID-19.

Looking into 2021e, the Group expects the conversion to online to persist. We increase 2021e and 2022e sales and EPS estimates by 5%. Directed share issue opens up for future M&A After closing its largest deal to date, BHG’s leverage ratio increased from 0.

1x to 2. 2x adj. net debt/EBITDA, limiting the room for potential M&A.

However, on 3 February after market close, the Group announced a potential directed share issue of 10. 8m shares, which could add c. SEK 1.

5 -1. 6bn, assuming a 0% to 5% discount to the closing price, bringing the leverage ratio back to 0. 2x to 0.

3x. A successful issue would imply a dilution of 10%. Valuation range raised to SEK 87-222 (83-209) To capture the long-term potential of BHG Group, we derive our valuation range from three-stage DCF model scenarios.

Scenario 1 gives a fair value of SEK 198 (186) per share while scenarios 2 and 3 yield SEK 87 (83) and SEK 222 (209) respectively.