GARO - E-mobility growth set to continue

Q4’20 report due on 12 February, 07:30 CET E-mobility improvements set to continue Trading at 40x EV/EBIT ‘21e, +100% vs. its history Q4’20 expectations We expect sales of SEK 300m, up 8% y-o-y (+10% organic, -2% FX, +1% M&A) driven by good profitability in E-mobility (+34%) on strong underlying market demand for EV chargers. That said, we forecast GARO’s three remaining areas – Project business (-2%), Electrical distribution projects (-2%) and Temporary power (-5%) – to decline in Q4, as we expect the slowdown in construction-related products seen in Q3 to continue into Q4. The organic growth, in combination with continued cost discipline, should lead us to an adj.

EBIT of SEK 49m, up 35% y-o-y, for a margin of 16% (vs. 13% in Q4’19). Structural demand for EV charging to drive growth We make only minor sales adjustments of 2-1% for ‘21e-22e, on the back of continued beneficial market conditions within charging infrastructure but somewhat lower demand for GARO’s remaining product areas.

Looking ahead, we expect GARO’s fastest-growing division, the E-mobility division, to continue to grow and become a larger part of the company’s total sales (from c. 23% of total group sales in 2019 to c. 34% in 2022e), driving a favourable price and product mix.

All in all, and given continued strict cost controls, we raise our EBIT estimates by 2% in ‘20e and 4% in ‘21e-22e, for a ’19-‘22e EBIT CAGR of 16%; with the margin expanding from 12% in ’19 to 14% in ‘22e. Stock is currently trading at 40x EV/EBIT ‘21e GARO’s share price has increased by c. 93% over the past 12 months and the company is currently trading at c.

40x EV/EBIT ‘21e, above its historical level of c. 20x EV/EBIT. We consider GARO to be a good way for investors to gain exposure to the massive EV trend and the continuing roll-out of EV-charging infrastructure.