Equity research Zinzino, Q2 2023: Strong profit gives room for increased dividend

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Zinzino continues to grow revenues and profits at a rapid pace. In Q2 2023, revenue grew by 24% to SEK 408m. In parallel, EBITDA increased by 167% to 53.7 MEK, corresponding to a margin of 13.2%. The company’s profitability was well above our forecast. After marginal adjustments to the forecasts, a fair value per share is estimated at SEK 58.1 (55.1).

Strong revenue and profitability growth

In Q2 2023, total revenues of SEK 408m were reported, corresponding to a growth of 24% – in line with our updated forecasts. At the same time, we believe that a weak SEK has, to some extent, favoured the company’s growth since Q2 2022 and the past quarter as well. In addition, growth in Q2 was favoured by a relatively weak comparison figure.

Gross profit grew by 41% to SEK 148m, corresponding to a solid gross margin of 36.4%. The outcome exceeded our forecast of SEK 137m, corresponding to a margin of 33.8%. EBITDA grew by as much as 167% to SEK 53.7m, corresponding to a margin of 13.2%. Our forecast was SEK 33.5m or a margin of 8.3%. The deviation in outcome compared to our forecast at the EBITDA level is attributable to a better-than-expected gross profit and lower-than-expected personnel costs. Earnings per share grew by an impressive 263% to SEK 1.09. We had expected earnings per share of SEK 0.63.

During the first six months of the year, free cash flow amounted to SEK 103.9m and at the end of Q2 2023, cash amounted to SEK 201m. Despite growth initiatives, there should be room to reduce the dividend to SEK 2.0 per share (1.75) for the 2023 result.

Growth and margin expansion in 2023

In 2023, we expect total revenues of SEK 1,695m (1,633), corresponding to a growth of 17.5%. That aligns with the company’s stated guidance for approximately SEK 1,700m. 2023-2025, we expect an average annual growth rate of 10.6% (10.4). That is also in line with the company’s goal of growing at over 10% per year. At the same time, possible large-scale acquisitions create an upside in our assumptions. In 2023, we expect gross profit to increase by 25.3% to SEK 583m (554), corresponding to a margin of 34.4% (33.9). EBITDA is expected to grow by 69% to 190 MSEK (162), corresponding to a margin of 11.2% (9.9). That is well above the company’s guidance of an EBITDA margin of 9% or more. By 2025, we have assumed that the EBITDA margin will increase to 10.4% (10.4). The company’s goal is to increase the EBITDA margin to over 9.0% by 2025.

A higher fair value with higher profitability

In a base case scenario, a fair value per share is calculated to SEK 58.1 (55.1). The upward revision is mainly due to higher revenue assumptions in the short term, which increases the multiple valuation. Our valuation corresponds to an EV/EBIT multiple NTM of 11.4x. The median value of the reference group is 12.9x. Today, Zinzino shares are trading at an EV/EBIT NTM of 7.9x. The company is expected to grow faster than the reference group at similar margins, and the discount is considered unjustified.

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