Gabriel Holding Q2'2024/25: Earnings improving but still risks to overcome

Gabriel delivered better-than-expected Q2 2024/25 results, with growth in continuing operations accelerating to 10.5% y/y, slightly above the top-end of the guidance range. Margins also developed positively, with continuing operations EBIT of MDKK 20.9 H1’24/25, at the lower-end of guidance. Revenue from discontinuing operations declined as unprofitable contracts were terminated, but with a positive EBITDA in Q2’24/25 and growth in Europe. Despite the stronger Q2’24/25 results, risks remain elevated, as we await the conclusions from the forensic investigation into Mexican subsidiary’s accounts, updates from the ongoing carve-out process, and heightened tariff-related uncertainty. The lack of a guidance upgrade also suggests a weaker H2’24/25 is projected, and while the larger European activities should be relatively insulated from tariffs, economic growth risks are elevated. While the Q2’24/25 results support our long-term view that Gabriel is well-positioned to benefit from a broader market rebound given its operating leverage and outperformance in weak markets, we see significant hurdles to overcome in order to de-risk the case. We therefore reiterate our “Reduce” recommendation with a revised price target of DKK 150 per share, raised from DKK 130 previously. 

FurnMaster carve-out, forensic investigation in Mexico, and tariffs are central to near-term uncertainty

We see the FurnMaster carve-out process as the largest risk relating to Gabriel currently, this includes the results of a forensic investigation into its Mexican subsidiary’s accounts, which could lead to write-downs and negative unforeseen outcomes. Tariff exposure further compounds the uncertainty. While we assume production from Mexico can currently avoid the worst of tariffs there is a risk of 25% tariffs on all Mexican goods into the US, which would negatively affect FurnMaster. Direct tariff exposure and the tariff-related uncertainty may also challenge the valuation or timing of the carve-out process. Despite the elevated near-term risks, the discontinuing operations did show a less negative result in Q2’24/25 of MDKK -1.5, compared to MDKK -9.4 in Q1’24/25, partly driven by 5% growth in its European operations. Ongoing one-offs relating to the restructuring and forensic accounting process should also fall during H2’24/25, but with some ongoing advisory fees. A conclusion of the forensic investigation or details regarding a valuation of the FurnMaster business unit can be triggers for lowering risk.

Continuing operations show accelerating growth, but tariff impacts remain uncertain

Gabriel’s continuing Fabrics and SampleMaster units posted 9% y/y revenue growth in H1, outperforming a sluggish market, and at the high end of guidance. Higher revenues and cost discipline drove margin expansion, with EBIT reaching DKK 20.9m, already within the low-end of full-year guidance. While performance is improving, the lack of a guidance upgrade suggests higher levels of tariff-driven uncertainty and possible tariff front-running in Q2’24/25. We continue to expect strong cash generation in H2’24/25 to support debt reduction, as demonstrated by year-to-date deleveraging. We believe material reinvestment in growth initiatives will likely only resume once the FurnMaster divestment is completed and balance sheet strength is restored.

Carve-out completion can de-risk the case, but short-term uncertainty now further elevated

Despite the improving results in H1’24-25, we still see uncertainty relating to tariffs, the timing and valuation of the FurnMaster carve-out, and forensic investigation of Mexican accounts. We see the carve-out as an important short-term trigger to strengthen the balance sheet and restart a growth focus. Based on our DCF model, we still see long-term potential in Gabriel.

Disclaimer: HC Andersen Capital receives payment from Gabriel for a digitalIR and research subscription agreement. / Philip Coombes 08:42 09 May 2025