We raise our target price slightly for Björn Borg to SEK 69 per share (prev. SEK 67) on slightly higher long-term estimates. In our view, Björn Borg has made good progress executing its strategy of expanding its core product categories and own e-commerce channel, which we expect to keep driving profitable growth. We continue to see Björn Borg as an interesting long-term investment opportunity, given the company's capacity for solid value creation. Following the recent moderation in valuation (the share price has fallen ~10% since our last update), we also believe the short-term expected return has strengthened. As a result, we raise our recommendation to Accumulate (prev. Reduce).

Björn Borg has evolved from an underwear company into a prominent sports fashion brand

Björn Borg is a Swedish sports fashion company offering a wide range of products, including underwear, sports apparel, footwear, and other accessories. The company initially gained recognition for its underwear, which remains a significant asset and the largest product category. However, we see sports apparel and footwear becoming increasingly important. Geographically, the company operates in around 20 markets, with roughly 80% of its revenue generated from its key markets, including Sweden, the Netherlands, Finland, and Germany.

In our view, Björn Borg’s investment case depends on the company’s ability to sustain profitable growth while successfully expanding its footwear and sports apparel categories. While the biggest positive driver for Björn Borg clearly is topline growth, the main near-term risks to achieving this are slow integration of footwear, a lack of brand traction, and prolonged weak consumer confidence.

Well-positioned to continue driving profitable growth

Björn Borg's underlying markets are expected to grow around 5-6% per year, driven by an increasing focus on health and fitness, the continued expansion of the sports apparel and athleisure segments, and steady demand for branded underwear. The market is characterized by relatively low barriers to entry and is fragmented, with fierce competition. Even so, we believe Björn Borg has succeeded in building brand traction, particularly in its sports apparel category, which has enabled the company to grow faster than the underlying market, a trend we expect to continue in the coming years. We estimate that revenue will grow at an annual rate of around 7%, driven by continued expansion in its core categories of sports apparel and footwear, while maintaining steady growth in the more mature underwear segment. That said, we believe overall consumer demand remains relatively sluggish, which continues to create uncertainty around the near-term revenue outlook. We expect profitability (EBIT margin) to improve toward 12% in the coming years, helped by operating leverage from sales growth, though continued expansion, particularly in Björn Borg's own e-commerce and in the German market. However, this is likely to bring additional costs.

Earnings growth and dividend yield support good expected return

In our view, investing in Björn Borg exposes the investor to a profitable growth company with a solid balance and potential for high dividend yield. While we are relatively neutral on the valuation on a current earnings basis (P/E Q1'26 LTM: ~17x), we see medium-term earnings growth of a good 8-9% and a dividend yield of some 5-6% per year, which together offer a total expected return above our required return. We therefore consider the risk/reward ratio quite attractive, and raise our recommendation to Accumulate (prev. Reduce) while increasing our target price slightly to SEK 69 per share (prev. SEK 67), mainly on the back of slightly increased long-term estimates.