Probi - Americas set to steal the show again

Q4 report on Tuesday, 9 February, at 08:00 CET Negative EBIT revisions primarily driven by FX 34x EBIT ‘21e on ~8.5% EBIT CAGR ‘20e-‘23e Q4 expectations We expect sales of SEK 175m, up 5% y-o-y (+12% organic, -7% FX), with continued strength in Americas offsetting the COVID-19 challenges in EMEA and APAC. We expect 11% y-o-y growth in Americas driven by Probi’s customers’ solid momentum in the e-commerce sales channels. According to Lumina Intelligence, US probiotic supplements have grown within e-commerce, with consumer engagement rising by 34% in H1’20. With shutdowns and restrictions continuing to hamper the more physical sales channels (e.g.

pharmacies and health food stores) in EMEA and APAC, we expect sales of -18% y-o-y and +4% y-o-y for the two regions, respectively. We forecast a gross margin contraction of 1.7pp y-o-y, leading to EBITDA of SEK 53m (margin of 30.5%, contraction of 1.6 pp y-o-y). In summary, we expect similar dynamics as we saw in the Q3’20 report.

Estimate revisions We lower ‘20e-‘21e sales and EBIT by 0.3-2.7% and 3-6%, respectively, mainly driven by recent FX movements (stronger SEK) and cuts to our expectations for the profitable EMEA and APAC regions. While Americas (now ~80% of group sales) is likely to continue benefitting from its exposure to e-commerce, visibility for a near-term recovery in EMEA and APAC remains low, in our view. 34x EV/EBIT ‘21e: ~25% above historical 2y NTM avg.

We are encouraged by Probi’s return to growth, recent healthy financial targets ( 7% organic growth) and ample M&A firepower (net cash SEK 250m ‘20e). While our estimates exclude M&A, we note that the share is trading at 34x EV/EBIT ‘21e, or ~25% above its 2y NTM average and 30% above key peers’ average. The probiotics sector has been heating up recently, with notable acquisitions from large players such as Novozymes and Chr.

Hansen further consolidating the space..