GARO - Q1 should include decent returns

Q1 report due on Wednesday, 5 May, 07:30 CET Small positive adjustments in E-mobility in ’21e-’23e Trading at ‘21e EV/EBIT of 38x, ’21e-’23e FCFy of 1-2% Q1’21 expectations We expect GARO to deliver good Q1 group sales of SEK 274m, up 10% y-o-y (11% organically, -1% FX, 1% M&A), and EBIT of SEK 34m, for a margin of 12. 4% (vs. 7. 6% in Q1’20).

Product area-wise, we expect a continued strong performance for E-mobility (EV-charging), up 32% y-o-y (29% organically, 4% M&A) with support from the ROT initiative implemented in Jan ’21, a growing EV fleet, and softer Q1’20 comps. Otherwise, we expect Electrical distribution products to show firm growth (+5% y-o-y), but the Project business (-2% y-o-y) and Temporary Power (-2% y-o-y) to be held back by continued lower activity in the construction market. Finally, to our understanding, GARO is not being affected by a lack of components or any production disruptions, but higher raw material costs could come to affect our H2’21 margins and estimates.

Small positive revisions for E-mobility and outlook We keep our estimates relatively unchanged at this stage. We raise sales and EBIT slightly for ‘21e-‘23e due to small positive volume revisions in the E-mobility product area. All in all, we expect EBIT to increase by 21% y-o-y in ’21, with the margin expanding from 13.

1% in ’20 to 14% in ’21e. This should primarily be supported by operational improvements from the ongoing work GARO is carrying out in the E-mobility product area, transferring the E-mobility operations to the wholly owned subsidiary GARO E-mobility AB, for the company to strengthen its position in the charging market and take advantage of the opportunities in the European market. Trading at ’21e EV/EBIT of 38x On our estimates, the share is currently trading at a ’21e EV/EBIT of 38x, ~27% above its 3yr average of 30x but ~18% below ‘20, while offering FCF yields of 1-2% and a dividend yield of 1% for ’21e-’23e.

We reiterate our view that GARO is well.