Q1 trends, estimates, valuation and top picks

The Q1 reports proved that sector companies could maintain record-high margins despite volume declines.

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.

Trelleborg (Hold, TP: SEK395.00) - Sunnier skies await

Overall, Trelleborg’s Q1 was in line with our estimates and consensus, while we believe the outlook comment heading into Q2 might be on the overly cautious side. We have made limited (1% on average) estimate changes on adj. EBITA for 2024–2026e and reiterate our HOLD. We have raised our target price to SEK395 (380) and see limited upside potential for the stock.

Rebasing the European expansion

Highlighting H2 improvement

Solid Q1 numbers, in line Q2 guidance. No underlying changes, but adding M&A means +2% on '24e EBITA. Maintain HOLD and TP at SEK 375.

No drama, limited ests revisions

Trelleborg (Hold, TP: SEK380.00) - Close to fairly valued in our view

We forecast Q1 sales of SEK8,546m (-1% organic growth YOY) and adj. EBITA of SEK1,479m. We have raised our 2024–2026e adj. EBITA by c9% on average, on the inclusion of the Baron acquisition, our more positive view on the general industrial cycle, and FX movements. We have increased our target price to SEK380 (350) based on our estimate changes and current multiples. However, on our view of limited upside potential and following incremental increases in the valuation (absolutely and relative to o...

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.

Trelleborg (Hold, TP: SEK350.00) - Becoming less negative on 2024e

Q4 was relatively solid, with a slight beat on organic growth and margins, as well as an outlook that suggests flat YOY organic growth in Q1. In light of the report and various cyclical datapoints, we are now less negative mainly on H1 organic volumes, and we have raised our 2024–2025e adj. EBITA by c5%. As a result, we have increased our target price to SEK350 (345) but still see limited upside potential and hence reiterate our HOLD.

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.

Trelleborg (Hold, TP: SEK345.00) - Time for a breather

We forecast Q4 sales of SEK8,561m (-1% organic growth YOY) and adj. EBITA of SEK1,440m. We have lowered our 2023–2024e adj. EBITA by c3.5% on average, largely due to recent FX movements, and slightly increased our margin estimates. We have raised our target price to SEK345 (316), owing to expanding peer multiples, and believe Trelleborg is trading close to its fair value (after gaining c38% YTD). With limited upside potential to our new target price and organic growth set to fade, we have downgr...

Decoding Alpha

Our analysis of underlying total shareholder return (TSR) drivers for Swedish Industrial companies reveals that high returns are not synonymous with high valuations. Investors tend to overpay for ‘growth’, while cash returns such as dividends and buybacks are typically deeply discounted. We believe Autoliv, Alfa Laval and Hexagon offer the most long-term TSR potential (13–14% annualised), with SKF and Trelleborg at the other end of the spectrum (8–9%), while also concluding that several stocks l...

Trelleborg (Buy, TP: SEK316.00) - Another undramatic quarter

Overall, the Q3 results were in line with consensus and our expectations, as was the Q4 market outlook. We have made limited estimate changes, and reiterate our BUY and SEK316 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).