DistIT - Margins continue to be a highlight

EBIT 23% better than ABGSCe EBIT down 4-1% ’21e-’23e Trading at 9. 7x EV/EBIT ’21e and 8% FCF yield Solid margins in Aurora Deltaco Sales of SEK 550m (-3% y-o-y) was a slight disappointment, but profitability was once again better than we expected, despite a business model with significant operational leverage. The most notable deviation was from Septon, which came in 22% below ABGSCe, mainly because we underestimated the effects of restrictions. DistIT also cancelled some low-margin contracts, which has a negative effect on sales but less on EBIT.

Reported EBIT of SEK 13. 4m was up 43% y-o-y and 23% better than ABGSCe, however, for a margin of 2. 4% (1.

7%). This was mainly due to strength in Aurora Deltaco, which delivered an EBIT margin of 4. 5% (ABGSCe 1.

8%). FCF was not as impressive as we expected at SEK -27m (SEK 47m Q1’20), with the build-up of working capital having a negative effect of c. SEK 18m.

Given the current supply chain turmoil and increasing input costs, we see consider a solid inventory position as a positive. Restrictions will continue to hamper results Restrictions continue to hamper retail and event activity into Q2, more significantly than we expected, leading us to lower our expectations for ’21e sales and EBIT by 4%. Septon should continue to see the most negative impact, with its exposure to public events.

However, we expect continued solid momentum for EMW in ’21e, which we see growing c. 20% and supporting a margin expansion. We expect DistIT to be able to transfer potential input and logistics cost increases to its customers, although with a slight risk of a negative short-term impact on margins.

All in all, we forecast FY’21 growth of c. 5%, with EBIT growing by 34%. Trading 13% below its long-term average valuation On our estimates, the share is trading at a ’21e EV/EBIT of 9.

7x, c. 13% below its 5Y historical average of 11. 2x, and offering 8% FCF yield ’21e and a 22% EBIT CAGR ’20-’23e.