* Cole & Son management changes weigh on Q1 EBITA
* We expect Cole & Son to move toward hospitality
* We reiterate our fair value range of SEK 36-43
Nordics performed better, DTC changes the P&L
In Q1, Embellence Group accelerated to 3% organic growth vs. broadly flat growth in Q4. As in Q4, Nordic brands were accretive for growth, with Boråstapeter growing 5% organically while External manufacturing grew by 20%. Pappelina, which recently received a major online platform overhaul, took significant strides as well, which is a positive signal for the ongoing DTC transformation. Cole & Son, which was undergoing management changes, declined 19%. The DTC transformation is making a clear mark in Embellence Group's P&L structure: gross margins improved 1.3pp y-o-y, but the SG&A ratio also rose 2.7pp. The result was a ~2pp margin contraction for an EBITA margin of 13.9% and EBITA of SEK 28m.
We expect near-term softness in Cole & Son
Yelena Ford joined Cole & Son as Managing Director in April, succeeding the Group CEO, who had held the role on an interim basis. We expect the new management to have a greater focus on hospitality sales going forward, thereby joining Wall & Decò in this end-market. Cole & Son’s new DTC platform performed well, but near-term distribution optimisation is likely to weigh on sales and margins into Q2. Cole & Son margins were also impacted by management changes in Q1, though the magnitude is unclear.
We reiterate our fair value range of SEK 36-43
As we make only very minor estimate revisions, we reiterate our fair value range of SEK 36-43. The share is currently trading at 7.7-5.4x EV/EBITA '26e-'28e, which can be compared to a historical trading range of 7x-8x NTM and a Swedish peer group of home improvement companies at a median 10.8x-8.1x '26e-'28e. We estimate a 10-13% FCF yield '26e-'28e, and a dividend yield of 5-5.7% for the same years.