Research update Zinzino, Q2 2022: A lukewarm quarter with glimmers of light
5 Sep 2022
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Zinzino delivered another lukewarm quarter with a good gross margin but an EBITDA result below our expectations. However, there are valuable bright spots, such as strong growth in the important Central European market. Furthermore, preliminary sales figures for July show a solid start to the third quarter. We have adjusted our revenue and profitability forecasts downwards and calculated a fair value per share of SEK 41.4 (52.8).
Tepid growth and profitability below our estimate
In the second quarter of 2022, the Zinzino Group reported total revenues of SEK 329 million. Thus, the past quarter was again lukewarm with a growth of 2.2 per cent – in line with our forecasts. It is encouraging that Central Europe continues to grow at a rapid pace. Furthermore, synergies from the acquisitions of the Enhanzz companies have started to be realised. It is, therefore, not unreasonable to begin speculating about further acquisitions to strengthen positions in existing markets.
The gross margin for the quarter was 32.0 per cent compared to our forecast of 30.0 per cent. That shows that the price increase has had a good impact. While more subscriptions will undergo a price increase, some uncertainty around the gross margin still remains as inventory is turned over. Reported EBITDA came in at SEK 20.1 million, corresponding to a margin of 6.1 per cent. That was well below our forecast of SEK 25.4 million or 7.8 per cent. Higher external operating costs explain the lion’s share of the variance.
The lowered target for 2022, but the long-term case remains
The company has downward revised its targets for the year. With current growth initiatives, the cost base has naturally come up. In addition, inflation has affected costs, while growth has not been achieved as intended. That is true in, e.g. the Baltics, among others, but also in Asia, where restrictions have (and continue to) hamper development.
Preliminary sales figures, however, show solid growth figures in July of ten per cent. The figures show that critical Central Europe continues to grow at a high rate of above 20 per cent. There are also signs that the Nordic region may turn around and eventually show growth again. The APAC region again showed strong growth above 50 per cent. It should also not be forgotten that with the current strategy (to grow by entering new markets), the company has had a strong historical performance with growth and improved profitability. The long-term case, in our view, remains intact while inflation and Covid constraints look to be diminishing.
Low valuation to recurring revenues
We have downwards adjusted our revenue forecasts in the short term, but remain confident that high growth rates will return. We have also lowered our profitability estimate for 2022 relatively significantly. We are lowering the long-term EBITDA margin to 10.3 percent from the previous 12.0 percent. In a base case scenario, a fair value per share of SEK 41.4 (52.8) is calculated for the next 6-12 months.
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