Equity research Zinzino, Q4 2023: Dividend signals sustained higher margins

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A strong 2023 for Zinzino is reflected in the proposed dividend increase to SEK 3.0 per share (1.75). Further penetration in existing markets together with the ongoing expansion into new geographies should drive growth in 2024. M&A is a possible spice. After revised forecasts for gross margin and profitability, a fair value per share of SEK 78.0 (73.2) is estimated.

Increased dividend after a strong year

In Q4 2023, total revenue of SEK 528m was reported, corresponding to a growth of 23%, in line with our updated forecasts. In Q4, Central Europe continued to grow at a fast pace, albeit slowing down. In North America, however, the growth rate increased sequentially, which is partly explained by the initiatives in Mexico. Overall, gross profit increased by 35% to SEK 202m, corresponding to a solid gross margin of 38.3%. This was above our forecast of SEK 193m and a margin of 36.5%. The improved gross margin during the year is partly explained by price increases and adjustment in the remuneration model for distributors. We believe this could lead to sustained higher gross margin.

EBITDA increased by 75% to SEK 71m, corresponding to a margin of 13.5%. We had expected an EBITDA of SEK 74m with a margin of 14.0%. Despite an above-expected gross margin, profitability further down the income statement was thus somewhat weaker than expected. For the full year 2023, EPS amounted to SEK 4.83, representing strong growth of 140%. In the light of a strong 2023, an increased dividend of SEK 3.0 (1.75) per share has been proposed.

Several growth drivers, acquisitions further opportunity

In our opinion, the most prominent drivers of revenue growth in 2024 and the coming years are further expansion in existing markets and the opening of new markets. In addition, a partnership has been entered into with ACN. This can be seen as a quick way to increase the number of distributors and thus also revenues over the next 1-3 years. Growth comes with scalability which should favour profitability in the coming years. Furthermore, we believe that the company has prioritised its M&A growth strategy. However, we do not model contributions from acquisitions in our model. Significant acquisitions can thus contribute to upside in our estimates and valuation.

For the full year 2024, we expect total revenue of SEK 1,916m (1,913), corresponding to a growth of 8.4%. In parallel, we have adjusted our forecasts for gross profit, which is now expected to increase by 8.4% to SEK 703m (674), corresponding to a margin of 36.7% (36.1%). EBITDA is expected to grow by 5.4% to SEK 255m (231), corresponding to a margin of 13.3% (12.1%).

Increased fair value assuming a better gross margin

In a base scenario, a fair value per share is calculated at SEK 78.0 (73.2). The upward revision is partly due to a higher gross margin, which weighs more heavily than a slightly adjusted cost base. Our valuation corresponds to an EV/EBIT multiple NTM of 10.5x. This is in line with our peer group trading at a median EV/EBIT NTM of 10.5x.

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