EUR 476.10 For Business Accounts Only

Bufab (Hold, TP: SEK390.00) - HOLDing our breath ahead of Q4

Following an organic growth decline in Q3, we now expect YOY organic growth to have troughed and believe a continued inventory release has the potential to provide strong cash flows for Q4e. We have raised our target price to SEK390 (345) on higher peer multiples but have downgraded Bufab to HOLD (BUY) given the strong share price performance in recent months and the valuation relative to its history and peers.
Q4 preview. We expect revenues of SEK2,038m, -2% YOY (-4%-points organic growth and +2%-points FX) and adj. EBITA of SEK236m, -1% YOY, translating into a margin of 11.6% (11.5% in Q4 2022). We also expect a DPS of SEK5.0 (30% of EPS), up 5% YOY. The Q4 results are due on 8 February (we expect c07:30 CET), and Bufab is set to introduce a new segment breakdown, again based on geographical regions.
Set for organic growth rebound, but FX provides headwinds. We estimate organic growth to increase QOQ to -4% YOY (-7% YOY in Q3; +1% YOY in Q4 2022). Thus, we believe Q3 could have marked a trough in organic growth – noting the coming quarters face gradually easier comparables – and expect positive organic growth YOY in Q2 2024. As the SEK has appreciated versus the EUR, USD, and GBP, the previous FX tailwind could turn into a headwind for earnings in 2024.
Cash flow. We expect continued effects from the inventory-reduction actions initiated in H2 2022 and that the remainder of the main inventory release will take place in Q4. Furthermore, the cyclical slowdown could accelerate the working capital release as accounts receivable shrink and less inventory is needed to serve customers. For Q4, we expect net debt/LTM EBITDA to contract to 2.5x (2.7x in Q3).
Downgraded to HOLD, but target price raised to SEK390, based on a blend of a peer group 2024e valuation and a DCF. At these levels, we believe the stock is fairly valued versus its history, peers and our estimated cash flow profile (we do not include unannounced M&A in our estimates). We continue to like Bufab’s strong position in a fragmented market, its earnings and organic growth trajectory, and its M&A track record.