* We forecast net sales of SEK 191m in Q2'26e
* DTC could weigh on Q2 EBITA, -7% y-o-y at SEK 24m
* We reiterate our SEK 36-43 fair value range
We forecast EBITA -6% y-o-y in Q2 on elevated DTC efforts
We expect sequentially tougher comps to lead to a deceleration for Embellence Group. Compared to 3.5% organic growth in Q1, we expect deceleration to flat growth in Q2 for net sales of SEK 191m. By segment, we expect the soft spell in Cole & Son to continue from Q1, following changes to the distributíon setup, and we forecast -6% organic growth for this segment. We also forecast a clear organic decline, -19%, for Artscape, versus the same quarter last year in which it launched a product line with a large customer. On the other hand, we expect Pappelina to continue to perform well after the DTC platform update (+20% org. growth) and its External Manufacturing segment to remain at the net sales level it reached in Q1, suggesting 16% growth. We expect stable gross margins to continue from Q1, and a slightly lower absolute opex level as Q1 contained more costs for trade fairs than is typical in Q2. All in all, we forecast adj. EBITA of SEK 24m, -7% y-o-y, as the group ramps up its DTC efforts.
Shift to DTC weighs on '26e EBITA growth
The transition to DTC is likely to keep weighing on profitability through a higher opex ratio: we forecast a 45% opex ratio for 2026 compared to 44% for 2025 and 42% for 2024. As such, we believe Embellence Group's EBITA growth for '26e could be muted at 1%.
We reiterate our fair value range of SEK 36-43
As we make only minor estimate revisions, we reiterate our fair value range of SEK 36-43. The share is currently trading at 7.5/5.2x EV/EBITA '26e/'28e, compared to a historical trading range of 7x-8x NTM and a Swedish peer group of home improvement companies at a median 11x/6.5x '26e/'28e. We estimate a 11-14% FCF yield '26e-'28e, and a dividend yield of 5-5.7% for the same years.