Lyko Group (Sell, TP: SEK95.00) - Stretched balance sheet

Following the Q1 report, we believe Lyko will not only have to make more substantial progress in balancing growth and cost control, but also consider new funding options more seriously. With financial expenses eating up earnings, its current debt position, and stretched balance sheet (net debt/EBITDA c4.6x), we have downgraded to SELL (HOLD) and cut our target price to SEK95 (128).

Early signs of margin improvements

Strong Nordics growth of 24% y-o-y. No automation capex in Q1, flat EBIT margins. We reiterate BUY and our TP of SEK 160.

Lyko Group (Hold, TP: SEK128.00) - Gross margin trend still negative

The Q1 report was weak, with the gross margin down c120bp YOY, a net loss, and a higher-than-expected net debt/EBITDA (incl. IFRS 16) of c4.6x. We expect consensus 2024–2025e EBIT to come down by c2–4% and net profit by c20–30%. We believe a negative share price reaction is warranted today.

Rebasing the European expansion

Retail Sector Report - ReTales Q4 2023

Retail Sector Report - ReTales Q4 2023

Retail Sector Report - ReTales Q4 2023

Retail Sector Report - ReTales Q4 2023

Lyko Group (Hold, TP: SEK128.00) - Europe weighing on group

We are cautious ahead of Lyko’s Q1 report; we are fairly in line with consensus on EBIT but below on net profit. We expect focus to be on efforts to improve the gross margin, its cash flow position, and the net debt trend (NIBD/EBITDA of 3.16x at end-Q4). We reiterate our HOLD but have raised our target price to SEK128 (105), reflecting the recent market revaluation of the stock.

Lyko Group (Hold, TP: SEK105.00) - Focus on profitability needed

Behind solid Q4 sales (impressive given weak consumer sentiment) were volatile margins, which remain a key challenge to the equity story. We believe a focus shift to more profitable growth and cost control are key to investors regaining confidence in Lyko’s ambitious growth story. We reiterate our HOLD, but have cut our target price to SEK105 (115) on lower estimates.

Lyko Group (Hold, TP: SEK115.00) - A weak end to 2023

Despite strong sales growth of 24% YOY, the Q4 gross margin was weak at 43% (consensus: 43.9%) and EBIT was c36% below consensus. We expect consensus 2024–2025e EBIT to come down by c5–10%. Net debt/EBITDA improved slightly to 3.2x on the back of a larger-than-expected FCF boost. We believe a negative share price reaction is warranted today.

Lyko Group (Hold, TP: SEK115.00) - Strong sales growth for Q4e

We are slightly below consensus estimates ahead of the Q4 results, and while we believe Lyko should report positive working capital and add some needed liquidity, we expect continued focus on the company’s cash flow and financial position given its high net debt position (end-Q3 NIBD/EBITDA of 3.5x). We reiterate our HOLD and SEK115 target price.

Lyko Group (Hold, TP: SEK115.00) - Growing debt concerns

Although Q3 sales were c7% above consensus and demand remains resilient, Lyko’s ‘full-steam-ahead’ approach to further grow the company creates margin volatility. We believe the margin fluctuations, negative FCF, growing net debt/EBITDA (3.5x at end-Q3) and weak cash position are concerns. We reiterate our HOLD but have cut our target price to SEK115 (120).

Lyko Group (Hold, TP: SEK120.00) - Cash flow in focus

Cash flow in focus We are slightly below consensus ahead of the Q3 results, and believe focus should be on Lyko’s cash flow and financial position, given the recent new financing loan of EUR43m on top of the already high net debt position (end-Q2 NIBD/EBITDA of 2.6x). We reiterate our HOLD but have cut our target price to SEK120 (165) on lower estimates, primarily driven by higher financial costs putting pressure on earnings.

Northern Lights

Northern Lights

Lyko Group (Hold, TP: SEK165.00) - Growth hurting margins

Achieving sales in line with consensus came at the expense of margins, thus Lyko’s Q2 report was weak, given the c54% miss on EBIT and negative net profit. With two large sales campaigns and aggressive inventory build-up to support the coming peak sales season in H2, we note a soft cash position and higher net debt. We reiterate our HOLD, but have cut our target price to SEK165 (185) due to lower estimates.

Lyko Group (Hold, TP: SEK165.00) - Growth hurting margins

Achieving sales in line with consensus came at the expense of margins, thus Lyko’s Q2 report was weak, given the c54% miss on EBIT and negative net profit. With two large sales campaigns and aggressive inventory build-up to support the coming peak sales season in H2, we note a soft cash position and higher net debt. We reiterate our HOLD, but have cut our target price to SEK165 (185) due to lower estimates.

Lyko Group (Hold, TP: SEK185.00) - Weak Q2

Although sales were in line with consensus, we consider this a weak report given the 53% miss on Q2 EBIT and negative net profit. We expect consensus 2023e adj. EBIT and net profit to come down c10–15% and c20–30% on the back of the report, respectively. We also note a weak cash position and free cash flow, as well as higher net debt. We believe a negative price reaction is warranted today.

Northern Lights

Lyko Group (Hold, TP: SEK185.00) - Outlier in a pressured sector

For Q2, we expect Lyko to continue to outperform the pressured e-commerce market. Our 2024e EBITDA margin is just below consensus, but we have raised our sales forecast by c1% due to discount activity and the company’s positive data traffic trend, in contrast to some Nordic beauty peers. We reiterate our HOLD, but have raised our target price to SEK185 (180).

Lyko Group (Hold, TP: SEK180.00) - Full of highlights

Despite an overall gloomy retail market, Lyko reported strong Q1 results, beating consensus sales and EBITDA by c9% and c18%, respectively. With Lyko continuing to grow steadily while navigating costs, we reiterate our HOLD and have raised our target price to SEK180 (170), taking into account the recent rally, already high expectations, and near-term market uncertainty.