Equity research Zinzino, Q1 2024: Solid growth outlook confirmed

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Zinzino continues to grow at a rapid pace and has several ongoing initiatives that can sustain continued high growth over the coming years. We have adjusted our forecasts for both revenue and profitability upwards. 

Initiatives for continued strong growth

Zinzino continues its rapid expansion. In Q1 2024, the company reported total revenues of SEK 455m, reflecting a 15% growth. The primary drivers of this growth are Central and Eastern Europe, along with Southern and Western Europe. Additionally, the last two quarters have shown notable positive development in North America, driven partly by the launch in Mexico. The company’s intention to enter another 3-6 new markets this year is thus particularly noteworthy. That indicates that Zinzino is undertaking several initiatives poised to sustain its high growth rate in the coming years. The latest initiative involves acquiring assets from the direct sales company Xelliss. The value from this acquisition is expected to come from the synergies gained through access to Xelliss’s distributor network. We anticipate this acquisition will boost revenues in Central Europe by SEK 85-100m within the first 12 months post-consolidation.

Solid scalability, but below our expectations

In Q1 2024, the gross margin increased by 2.2 percentage points year-on-year, reaching 35.4%, closely aligning with our forecast of 35.5%. Thanks to good scalability, EBIT rose by 18.3% to SEK 45m, corresponding to a margin of 9.8%. However, our expectation was slightly higher, with an anticipated EBIT of SEK 53m, equating to a margin of 11.7%. Earnings per share grew by 20.9% to SEK 1.04, although our forecast was SEK 1.23.

Increased fair value. Further M&A adds potentially additional upside

In light of growth initiatives, the outcome for Q1 2024, and preliminary sales figures for April 2024, we have adjusted our revenue forecast for 2024 upwards by 7% to SEK 2,058m, reflecting a growth rate of 16.7%. Over the next three years, from 2024 to 2026, we expect revenue to grow by an average of 10.5% per year. That is below the company’s target of achieving an average growth rate of at least 20% over the same period. However, it is essential to note that our forecast does not account for potential future acquisitions, a topic that remains a priority for the company. With increased revenue expectations, we have also raised our forecast for EBITDA in 2024 by approximately 4% to SEK 265m, corresponding to a margin of 12.9%. For 2024-2026, we anticipate an average EBITDA margin of 13.4%, which aligns with the company’s target of maintaining an EBITDA margin above 10%.

In a base case scenario, we estimate a revised fair value per share of SEK 89.7 (78.0) due to higher forecasts and a lower discount rate resulting from a reduced size premium. Our valuation corresponds to an EV/EBIT multiple NTM of 11.5x. The peer group trades at a median EV/EBIT NTM of 11.4x. The stock trades at 10.1x our EBIT NTM forecast, representing an unjust discount.

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