Orthex will publish its Q4 report on Wednesday at 9:00 am EET. We expect revenue to be down slightly from the unreasonably strong comparison period in a weak demand environment. Our estimates anticipate an increasing dividend distribution from Orthex, but as usual we do not expect the company to provide guidance for the current year. Given the lack of guidance and the poor development in the media coverage of some of Orthex's export market distributors, we find comments on the market outlook of particular interest.

Demand environment remained weak in Q4

Based on retail sales figures, Orthex’s business environment has remained subdued in Q4 in the Nordics. In addition, some of Orthex's distributors in the European export markets have been in the headlines for their financial difficulties, which we expect will also weigh on Orthex's growth prospects. In our forecasts, the company’s Q4 revenue decreased by 2.8% to 22.8 MEUR. The company is facing an unfairly strong comparison period, in which we estimate that orders from Nordic retailers were higher than usual, supported by pent-up demand. In our forecasts, the Nordic countries depress group revenue, although we also expect growth in export markets to suffer from a weak distribution network (e.g. the bankruptcy of Homebase in the UK and the debt restructuring of Container Store in the US and GiFi in France). Our previous comment on the poor financial progress demonstrated by these distributors can be found here. Nevertheless, we believe that the development of export markets will play an interesting role in view of Orthex's growth strategy in Europe, which focuses on markets outside the Nordic region.

Operational business leverage swings in the wrong direction in our estimates

In terms of profitability, Q4 is a seasonally good quarter for Orthex, but being a growth company, declining revenue from a strong comparison period hits its profitability hard in our forecasts. We expect the earnings level to have been under pressure driven by lower revenue, a slightly lower gross margin and higher growth investments than in the comparison period. Possible write-downs of receivables slightly increase the negative forecast risk in our view. During the reporting period, Orthex's plastic raw material prices have been roughly in line with the comparison period but volatile, so that the timing of purchases determines the impact of raw materials on the gross margin.

We expect growth to continue once the strong comparison period has been overcome

Orthex has not provided guidance during its time as a public company, and we do not expect the company to begin providing guidance this year either. We anticipate the company's revenue growth to accelerate to 4% this year (2024e: 3%) and the EBIT margin to strengthen to 11.5% (2024e: 10.5%). We expect Orthex's business environment to be more favorable this year than in the previous year, driven by strengthening consumer confidence and purchasing power as interest rates fall.