Research update Zinzino, Q1 2022: Recovery in the cards after a lukewarm quarter

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Research update Zinzino, Q1 2022

For the first quarter of 2022, Zinzino reported moderate growth with profitability below our expectations. Easing restrictions and acquisitions could boost the growth rate in future quarters. The April figures also show accelerating growth in APAC. Margins may also start to climb as the price increases take full effect. We estimate a fair value per share of SEK 52.8 (60.7). Lower margin assumptions and higher discount rate lower the fair value.

Growth in key markets

The Zinzino group reported total revenues of SEK 334 million in the first quarter of 2022, representing tepid growth of 0.7 per cent year-over-year. Counting Faun as a separate region and excluding Africa (no comparative figures), sales grew in four of eight regions. Except for the Baltics and the Nordics, the major markets in Europe grew at an acceptable rate.

With eased restrictions, we expect growth in Europe to pick up in the coming quarters. The acquisition of Enhanzz in Germany provides a small revenue contribution but more importantly sales synergies that we believe can be realised in the second half of the current year. The Nordics and APAC held back the group’s growth. We believe the Nordic region will continue to decline, while preliminary sales figures for April show a return to growth in APAC, which bodes well.

Solid gross margin

The group’s gross profit amounted to just over SEK 99 million, corresponding to a margin of 29.7 per cent. That was marginally better than our estimate of SEK 97 million and 29.3 per cent, respectively. That signals that the price increase has already had a decent impact. However, we believe that the full effect of the price increase will become visible in the third quarter. Nevertheless, the question remains whether the implemented price increase will be able to fully cover the increased costs of goods sold when the inventory is turned over.

The EBITDA result for the quarter was SEK 25.8 million, corresponding to a margin of 7.7 per cent. That was in line with the company’s long-term target of an EBITDA margin above seven per cent. The result was also below our forecast of SEK 33.4 million and is mainly explained by higher than expected personnel costs. However, given our growth assumptions for the coming quarters, we expect the scalability of the business to lift the EBITDA margin.

Short-term factors lower fair value

Given the outcome for the first quarter and the preliminary sales figures for April 2022, we have lowered our revenue forecast for 2022 by just over one per cent to SEK 1 490 million. Operating profit has been adjusted down by more than ten per cent to SEK 111 million. A fair value per share of SEK 52.8 (60.7) is motivated for the next 6-12 months in a base case scenario.

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