BHG Group - Stronger for longer
The “stay-at-home” story continues Private label initiatives strengthen margins Our ‘21e adj. EBIT has been raised by 18% Organic growth above 40% (pro-forma) BHG continues to benefit from overall strong market growth in home improvement and an accelerating transition to e-commerce. The group reported organic growth of 36. 5% in Q1’21, or 36.
6% on a twelve-month rolling basis. We also note that the pro-forma organic growth was 42. 7% as strong growth in the recently acquired Nordic Nest gave additional fuel to the group.
With comparisons getting increasingly difficult beyond Q1’21, growth rates are set to fall from here. However, we expect sales to remain well above the 2019 levels on a like-for-like basis as: 1) the home improvement trend could remain stronger for longer and 2) the underlying online penetration is expected to continue its positive path. Furthermore, the adjusted EBIT margin expanded by more than 2pp as the DIY division has successfully increased its share of private label to “slightly more than 20%”.
Outlook and estimate revisions In like-for-like terms, we calculate that BHG’s Q1 sales came in around 70% above Q1 2019. With the stay-at-home trends clearly being stronger for longer, we have raised our 2021 sales estimate by 9%. Although we expect a gradual deceleration from here, our revised estimates suggest that 2021 sales could arrive close to 50% above the 2019 level (like-for-like), implying an organic sales CAGR of 22%.
Furthermore, we believe that the current margin level could be sustainable and pencil in adj. EBIT of SEK 894m for 2021e, up by a hefty 18% versus our previous estimate. Lastly, the recent SEK 1.
6bn share issue dilutes EPS by ~8%. Valuation 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 200 (198) per share while scenarios 2 and 3 yield SEK 88 (87) and SEK 224 (222), respectively.
