Equity research Zinzino, Q3 2023: Impressive profitability

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Zinzino has wind in its sails, to say the least. In Q3, revenues increased by 25% to SEK 437m. At the same time, earnings per share grew by 273% to SEK 1.58. We have adjusted our profitability forecasts upwards and estimate a fair value per share of SEK 62.9 (58.1).

Increased dividends in the cards

In Q2 2023, total revenues of SEK 437m were reported, corresponding to a growth of 24%, in line with our updated forecasts. North America, including the new market, Mexico, grew by 76% during the quarter. At the same time, the growth figures continue to benefit from a weak krona. Gross profit increased by 50% to SEK 167m, corresponding to a solid gross margin of 38.2%. That was clearly above our forecast of SEK 143m, corresponding to a margin of 33.2%. Operating expenses, excluding cost of goods sold and depreciation and amortisation, increased by 12%. With scalability in the business model and with some help from currency (with the lion’s share of personnel costs in SEK), EBITDA grew by a full 180% to SEK 71.2m, corresponding to a margin of 16.3%. Our forecast was SEK 42.1m or a margin of 9.8%. Rolling 12 months, earnings per share after Q3 2023 were SEK 4.4, corresponding to a growth of 169%.

During the past quarter, free cash flow amounted to 103 MSEK. At the end of Q3 2023, cash amounted to 299 MSEK. There should be room to reduce the dividend to SEK 2.0 per share (1.75). Given the cash flow and cash, SEK 2.0 per share can also be seen as a conservative assumption.

Profitability above the company’s target

A fair value per share of SEK 62.9 (58.1) is calculated in a base case scenario. The upward revision is due to higher profitability estimates but is held back by a higher risk-free interest rate. Our valuation corresponds to an EV/EBIT multiple NTM of 8.9x. Today, the share is trading at an EV/EBIT NTM of 7.4x. That is an undeserved discount compared to our reference group, whose median EV/EBIT NTM is 11.7x.

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