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Embellence Group - New CEO could accelerate DTC efforts

08 januari 2025

<a id="bm-comp-eef1e888-20de-4faf-a866-ac37443398f3" name="bm-comp-eef1e888-20de-4faf-a866-ac37443398f3" class="BMCustomAnchor"></a><table><tr><td bm-component-id="eef1e888-20de-4faf-a866-ac37443398f3" style="vertical-align: top; width:100.000000%;"><ul><li>Q4 report due 18 February</li><li>We forecast net sales of SEK 189m, EBITA of SEK 27m</li><li>Trading near low end of historical range into market recovery</li></ul></td></tr></table><a id="bm-comp-c54d2854-8bc3-4d41-8089-596c792b9f1c" name="bm-comp-c54d2854-8bc3-4d41-8089-596c792b9f1c" class="BMCustomAnchor"></a><table><tr><td bm-component-id="c54d2854-8bc3-4d41-8089-596c792b9f1c" style="vertical-align: top; width:100.000000%;"><h3 class="bm-h3">Q4: EBITA +16% y-o-y driven by gross margin improvements</h3><p>We forecast -1% organic growth for the Group y-o-y in Q4. On the one hand, we expect soft Nordic markets and a tough comp to lead to organic declines of 8% and 15% for Bor&#229;stapeter and Wall &amp; Dec&#242;, respectively. On the other, we expect Artscape's easy comp and the strong momentum in External Manufacturing to lead to organic growth of 10% and 40% for these respective segments. We expect customer-driven gross margin improvements from Q2 to be persistent, as we see few signs of large shifts in consumer behaviour, i.e. we expect positive mix effects by both channel and product to remain, which is the main driver of our forecast 2pp margin improvement (to 14.3%) for adj. EBITA of SEK 27m in the quarter.</p><h3 class="bm-h3">We forecast 11% EBITA growth in 2025</h3><p>For 2025, we expect that lower interest rates and lower inflation could support growth, and we forecast 3% organic growth for the FY. Coupled with further gross margin improvements (mainly from capacity utilisation in the factory), we forecast a 1pp margin expansion for EBITA growth of 11% y-o-y. We appreciate the fact that the incoming CEO has extensive experience in turning a retailer into an online DTC retailer, which is one of the main levers for future margin expansion, as highlighted in our <a href="https://abg-portal.bluematrix.com/report/20e3ace0-b925-44c4-ad39-73cc61b1a43d" target="_blank">September update</a>.</p><h3 class="bm-h3">Trading at 6x '25e EV/EBITA vs. hist. 6x-9x NTM EV/EBITA</h3><p>The Embellence share is trading at 6x-5x '25e-'26e EV/EBITA. We make small negative '24e estimate revisions in this note, leaving '25e-'26e largely unchanged, and we thus also leave our fair value range unchanged at SEK 33-40, corresponding to 6x-7.5x '25e EV/EBITA vs. its own historical trading range of 5.5-8.5x and a median of 11x for Nordic home improvement peers. The current share price implies a 28% accumulated FCF (after IFRS payments) yield in '25e-'26e.</p></td></tr></table>

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