EUR 850.00 For Business Accounts Only

Morningstar | Healthy Growth in the VA Segment and Audio Business for GN Store Nord

GN Store Nord's first-quarter results were robust, with revenue up 19% organically. We were surprised by an unusually weak cash flow conversion for the company, driven by the increasing receivables and inventory balances. The company anticipates normalization for these lines over the remainder of the year; for now we aren't making any changes to our valuation or our narrow moat rating. Shares are moderately overvalued.

The hearing business' performance was in line with our forecast. The company is seeing good momentum in the U.S. independent and the Veterans Affairs (VA) channels, with its market share in the latter now at 28%, making GN the largest supplier to this very lucrative channel. We don't anticipate the company to retain such high share within the VA with competition intensifying there, but the meteoric rise GN experienced speaks highly of the appeal of its LiNX Quattro product line. The Beltone business is recovering from its challenges in 2018, but the U.S. retail has been struggling for all major wholesalers with retail presence.

GN Audio's excellent growth in the quarter was driven by healthy demand from all regions as well as end markets. We are more focused on the enterprise business given it is where GN's competitive positioning is stronger, but the consumer segment's growth was very healthy in the quarter. Strong performance on the top line resulted in a sizable pull-through on the margin line, with EBITA up 440 basis points in the segment, offsetting incremental investments in the hearing business.