Main menu button

Equity research, Zinzino: On track to achieve growth target

4 Oct 2024

On 3 October, Zinzino released its preliminary sales figures for the third quarter. Total revenue increased to SEK 531.9m, representing a 22% growth. The key growth drivers were South and West Europe, Central Europe and North America. In our latest research update, we anticipated total revenues of SEK 499m for Q3. However, following the release of the strong sales figures for August, we concluded that our previous estimates were likely too conservative (see the comment here). Sales in September grew 16 per cent, a lower rate than the whopping 39 per cent in August. However, history demonstrates that significant monthly variations are common, and overall, Q3 growth was well in line with company targets (at least 20 per cent growth on average).

For Q3, we expect a gross profit and EBITDA of SEK 181m and SEK 69m, respectively. We expect lower margins year-on-year but a sequential increase compared to Q2. Going forward, we believe raw material prices should become less of a headwind for the gross margin, but the timing is uncertain.

Raised fair value in a base case scenario

Following the stronger-than-expected preliminary Q3 sales figures, we have raised our sales and EBITDA estimates for 2024E-2026E by 3-6 per cent and 6-9 per cent, respectively. Using the same valuation method as before, we arrive at a new base case valuation of around SEK 97 per share (86.8).

Read our latest research update here.

Zurvita, a clear trigger

As previously announced, Zinzino has signed a letter of intent to acquire US-based direct sales company Zurvita, which has annual sales of USD 30m. Zinzino has previously stated that it expected the deal to close in Q3. We have not yet modelled any revenue and profitability contribution from Zurvita.

A Zurvita acquisition should boost North American sales significantly. We believe Zinzino’s history proves that adding new products and expanding the network can create significant synergies. Zurvita sells plant-based nutritional products as well as Zinzino Balance oils. Hence, there are likely some overlapping sales at an unknown amount. However, we assume the overlap will be mitigated as Zinzino should be able to record end-customer sales of the Balance Oils at a higher price than selling via Zurvita.

Zinzino has previously agreed to pay some 0.6x sales for Zurvita (up to USD 17m in cash and equity). This is well below Zinzino’s own valuation on First North. Zinzino has stated that Zurvita’s gross margin is good. In summary, while many details remain unknown, we believe a completed acquisition of Zurvita would have a clear positive impact on our estimates and valuation.

Disclaimer

Carlsquare AB, www.carlsquare.se, hereinafter referred to as Carlsquare, is engaged in corporate finance and equity research, publishing information on companies and including analyses. The information has been compiled from sources that Carlsquare deems reliable. However, Carlsquare cannot guarantee the accuracy of the information. Nothing written in the analysis should be considered a recommendation or solicitation to invest in any financial instrument, option, or the like. Opinions and conclusions expressed in the analysis are intended solely for the recipient.

The content may not be copied, reproduced, or distributed to any other person without the written consent of Carlsquare. Carlsquare shall not be liable for either direct or indirect damages caused by decisions made on the basis of information contained in this analysis. Investments in financial instruments offer the potential for appreciation and gains. All such investments are also subject to risks. The risks vary between different types of financial instruments and combinations thereof. Past performance should not be taken as an indication of future returns.

The analysis is not directed at U.S. Persons (as that term is defined in Regulation S under the United States Securities Act and interpreted in the United States Investment Companies Act of 1940), nor may it be disseminated to such persons. The analysis is not directed at natural or legal persons where the distribution of the analysis to such persons would involve or entail a risk of violation of Swedish or foreign laws or regulations.

The analysis is a so-called Assignment Analysis for which the analysed company has signed an agreement with Carlsquare for analysis coverage. The analyses are published on an ongoing basis during the contract period and for the usually fixed fee.

Carlsquare may or may not have a financial interest with respect to the subject matter of this analysis. Carlsquare values the assurance of objectivity and independence and has established procedures for managing conflicts of interest for this purpose.

The analysts Markus Augustsson, Christopher Solbakke, and Niklas Emhammer do not own and may not own shares in the analysed company.

Equity research, Zinzino: On track to achieve growth target