Higher costs to handle supply chain turmoil
Elanders reported a mild quarter with disappointing margins, despite solid volumes. Sales were SEK 2,769m, with organic growth of 6% y-o-y, 4% better than ABGSCe. Automotive performed as expected, Electronics and Fashion & Lifestyle were both 8% better, Industrial 6% worse and Healthcare & Life Science a whopping 59% better. Notably, volume from the subscription boxes appears to be down c. 20% sequentially (-2% effect on group level), as Elanders customers have begun to handle third-party logistics themselves. However, this should have a minor negative effect on EBITA and a positive effect on margins. Elanders states that problems with supply chains and semiconductors has affected margins in a negative way. Hence, gross profit was SEK 383m, 7% below ABGSCe, for a margin of 13.8% (1.1pp below R12m gross margin). There was no surprise on opex, but the drop-through from gross profit led to EBITA of SEK 145m, 16% below ABGSCe.
Higher volumes at lower margins
We lower our EBITA estimates by 7-1% for ’21e-‘23e, primarily on lower margin assumptions. The problems relating to supply chains and semiconductors should continue into H2, and primarily in Q3. We have also reduced financing costs to reflect the new terms, increasing EPS. We increase sales by 2-4% in ’21e-‘23e, primarily on increased healthcare volumes (+2% for ‘22e), a renewed and increased contract in Print & Packaging (+1%), the acquisition of Schätzl (+1%) and FX (+1%), offsetting volume losses in subscription boxes (-2%).
Trading 39% below its peer group, offering 7% lease adj. FCF
Elanders trades at 11x ‘22e EV/EBITA, ~39% below our peer group, while offering a 13% EBIT CAGR for ’20-’23e (2pp above peers) and a >7% lease adj. FCF yield. Management reiterates that it intends to accelerate its M&A agenda, which the ‘22e 0.5x lease adj. ND/EBITDA supports. We expect that Elanders could add c. 34% to EBITA in 2022e through M&A, without breaching its target of maintaining ND/EBITDA below 2.5x.