Generic: Solid Q3, but growth falls short of high hopes - ABG
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39% sales growth y-o-y, EBIT +50% y-o-y
Sequential sales decline behind estimate revisions
’22e EV/EBIT of 45x, 1.4% dividend yield
Generic reported Q3 net sales of SEK 27.2m (+39% y-o-y), 4% below our forecast. The deviation stems from a higher sequential drop in sales that we have witnessed historically, probably due to some extra income in Q2 from the integration of the Swedish Social Insurance Agency. EBIT of SEK 6.0m (4.0m) was 3% ahead of ABGSCe, however, and grew 50% y-o-y. The beat comes on lower-than-expected opex, particularly other external costs that were down y-o-y despite rapid sales growth. The company signed an additional 79 (77) new customer agreements in the quarter and as mentioned before, it has been able to onboard larger customers than it has in the past; this is particularly relevant given that Generic’s potential to upsell is higher on these types of customers.
On 22 November, Ericsson agreed to acquire US-based cloud-based communications services provider Vonage at an EV of USD 6.2bn or SEK 55bn, meaning Ericsson has now entered the same market as Generic, albeit in the US. The USD 6.2bn acquisition price equals ~30x Vonage’s 2022e cons. EBITDA of USD 210m, but it only has an 8% revenue CAGR over the last three years, which is below the overall market. Generic is currently trading at a ’22e EV/EBIT of 45x with an expected dividend yield of 1.4%.
Sequential sales decline behind estimate revisions
’22e EV/EBIT of 45x, 1.4% dividend yield
Generic reported Q3 net sales of SEK 27.2m (+39% y-o-y), 4% below our forecast. The deviation stems from a higher sequential drop in sales that we have witnessed historically, probably due to some extra income in Q2 from the integration of the Swedish Social Insurance Agency. EBIT of SEK 6.0m (4.0m) was 3% ahead of ABGSCe, however, and grew 50% y-o-y. The beat comes on lower-than-expected opex, particularly other external costs that were down y-o-y despite rapid sales growth. The company signed an additional 79 (77) new customer agreements in the quarter and as mentioned before, it has been able to onboard larger customers than it has in the past; this is particularly relevant given that Generic’s potential to upsell is higher on these types of customers.
On 22 November, Ericsson agreed to acquire US-based cloud-based communications services provider Vonage at an EV of USD 6.2bn or SEK 55bn, meaning Ericsson has now entered the same market as Generic, albeit in the US. The USD 6.2bn acquisition price equals ~30x Vonage’s 2022e cons. EBITDA of USD 210m, but it only has an 8% revenue CAGR over the last three years, which is below the overall market. Generic is currently trading at a ’22e EV/EBIT of 45x with an expected dividend yield of 1.4%.