<a id="bm-comp-cd0a3aa7-0d1d-4733-9a93-2b3ca90bf6e9" name="bm-comp-cd0a3aa7-0d1d-4733-9a93-2b3ca90bf6e9" class="BMCustomAnchor"></a><table><tr><td bm-component-id="cd0a3aa7-0d1d-4733-9a93-2b3ca90bf6e9" style="vertical-align: top; width:100.000000%;"><ul><li>Aims to grow DTC by ~30% CAGR next three years</li><li>We lower our '26e-'27e EBITA by 3-2% on cost ramp-up</li><li>We reiterate our fair value range of SEK 36-43</li></ul></td></tr></table><a id="bm-comp-39bb7a26-590a-4baf-9ba3-b11dfa37f3e2" name="bm-comp-39bb7a26-590a-4baf-9ba3-b11dfa37f3e2" class="BMCustomAnchor"></a><table><tr><td bm-component-id="39bb7a26-590a-4baf-9ba3-b11dfa37f3e2" style="vertical-align: top; width:100.000000%;"><h3 class="bm-h3">Ramp-up phase for future payoff</h3><p>For Embellence Group, Q3'25 looks to be the start of the transformation according to the strategy set out during the April 2024 CMD, which focuses on DTC and Hospitality sales. Organic growth accelerated to 5% y-o-y, driven primarily by Pappelina and External Manufacturing. Although gross margins were stable y-o-y as well, EBITA was 8% lower as a result of ongoing preparations to take the next step in its growth journey. Both Artscape's and Pappelina's online platforms have been upgraded, and Cole & Son is next in Q4'25. A new head of e-commerce has been hired and the sales organisation in Hospitality has been strengthened.</p><h3 class="bm-h3">Q3 comments suggest 30% CAGR in DTC N3Y</h3><p>Embellence communicated that it intends for half of its growth in the next three years to come from the DTC channel. In Q2, it said that 8% of sales were from DTC in LTM terms. Assuming that Embellence Group refers to the organic growth that is implied by its financial targets, i.e. organic sales around 6%, this means management expects a ~30% sales CAGR for the DTC channel, which would take the DTC share of sales to 15%. We raise our gross margin estimates to align with these efforts, which means the initial ramp-up of opex is partially offset in '26e-'27e. In total, we lower our '25-'27e EBITA by 8-2%.</p><h3 class="bm-h3">We reiterate our fair value range of SEK 36-43</h3><p>We leave our fair value range of SEK 36-43 unchanged in this note, as we make limited revisions to '26e-'27e EBITA. The share is trading at 9x-7.5x our '25e-'26e EBITA, which can be compared to its L3Y range of 6.8-7.9x NTM. Our fair value range corresponds to 6.8-8x '26e EBITA. At the current market price, we forecast a post-lease FCF yield of 10-11% for '26e-'27e.</p></td></tr></table>