Research update Zinzino, Q3 2022: Increased growth at an unjust discount
21 Nov 2022
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Equity Research Zinzino
In the past quarter, Zinzino reported accelerating growth with profitability above expectations. Central Europe continues to drive growth, while synergies from the Enhanzz acquisition are starting to show. In a base case scenario, a fair value per share is calculated at SEK 44.4 (41.4).
Increasing growth and profitability above expectations
With total revenues of SEK 350 million in the third quarter of 2022, Zinzino increased its growth rate to 11.6 per cent, compared to 2.2 per cent in the second quarter. Our updated forecast was for SEK 346 million, so the outcome was in line with expectations. Central Europe, which grew by 33.2 per cent, continues to drive the group’s overall growth. At the same time, the company’s largest submarket, the Nordics, continues to hold back. However, as stated in the quarterly report, activity is increasing in all Nordic countries except for Finland, where targeted efforts are made in the form of digital and physical events for the distributors.
Gross profit came in at SEK 111 million, corresponding to a margin of 31.7 per cent. Our updated forecast was 30.3 per cent, so the result was slightly better than expected. Excluding depreciation and amortisation as well as cost of goods sold, the cost base increased by 27.5 per cent, faster than revenue. The EBITDA result thus fell by 37.2 per cent to SEK 24.5 million, corresponding to a margin of 7.3 per cent. We had expected an EBITDA result of SEK 20.7 million and an EBITDA margin of 6.0 per cent. Nonetheless, the outcome was, therefore, slightly better than expected.
Strong prospects with synergies
As stated in the quarterly report, synergies from the acquisition of Enhanzz have started to be realised. The acquired Enhanzz product range was launched in October to all Zinzino distributors and on the website. In light of that, as well as an accelerating growth rate in the third quarter and continued strong momentum in Central Europe, we believe that the growth prospects are strong, despite the current macroeconomic situation. In 2023, we expect growth of 12.6 per cent. Over the entire forecast period, 2022-2031, we expect an annual average growth rate of 7.4 per cent.
In light of the third quarter outcome, we have slightly adjusted our profitability assumptions upwards. We now expect an EBITDA margin in 2022 of 6.6 per cent. Over time, we expect the EBITDA margin to rise to 9.7 per cent. The company’s target is to have an EBITDA margin above nine per cent. We do not include any acquisitions; thus, further acquisitions create potential upside in our forecasts.
Higher justified value with higher profitability
In a base case scenario, a fair value per share is calculated at SEK 44.4 (41.4). The upward revision is mainly due to higher profitability assumptions. Our valuation corresponds to an EV/Sales multiple NTM of 0.9x. The median of the reference group is 0.9x. Today, Zinzino shares are trading at an EV/Sales NTM of 0.5x – an unjust rebate.
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