DistIT - Feedback from CMD

CMD sheds light on own brands, expansion strategy Aims to deliver 26% EBIT CAGR organically Trading c. 11% above avg. 5Y EV/EBIT CMD highlights At today’s Capital Markets Day, DistIT’s management outlined the path towards SEK 3. 5bn in sales in 2025 (8% organic CAGR ’20-’25e).

At the core of the strategy is the company’s own brands, with a focus on areas as Gaming, Smart Home and EV charging. We see the capital-light strategy as an astute one, with partners developing and producing the firm’s own-branded products and DistIT distributing and marketing them, as it has extensive expertise of doing so for external brands. To leverage the portfolio of own brands, DistIT plans to expand into the pan-European market and expects to add c.

SEK 400m in sales from the region by 2025. Management sees no problems reaching group gross margins of c. 25%, primarily through margin accretive own product sales.

This, together with limited opex hikes, is likely to indicate in solid drop-through potential to EBIT. Management targets EBIT margins of 8% in ‘25e, implying a 26% EBIT CAGR ’20-‘25e. DistIT also presented an M&A strategy focused on value creation through synergies.

It assumes to more than double the EBIT of targeted distributors through cross-selling of own brands, and expects to be able to acquire at c. 3. 5x EBIT after synergies.

The expected M&A firepower of SEK 1. 5-2bn implies it could overshoot its ‘25e sales target of 3. 5b by c.

100%. ABGSC view We are encouraged by what we see as an achievable strategy and find it supportive of the ‘25e financial targets. As such, we have raised our ’21-’23e EBIT estimates by 2-17%, but have left room into the financial targets, as we want to see continued performance from own brands and stability in external brand sales during 2021 to fully support the targets.

Due to uncertainty, we have only included a 25-40% contribution from the planned geographical expansion in ’22-’23e. M&A is not included and would thus add to estimates.