Generic: Prioritising growth over margins - ABG
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22% organic sales growth y-o-y
Lower than expected gross margin
Price increases should help gross margin in Q2
Q1: Sales growth of 22%, EBIT margin of 16.3% (21.3%)
Generic's Q1 numbers were quite eventful as there was a new strategic direction prioritising growth opportunities over margins mid-term. The company reported net sales of SEK 42.2m (+22% y-o-y, all organic), and EBIT was SEK 6.9m (7.4m). This was 5% above our expectations on sales but 14% below on EBIT. The main reason for the lower profitability was a lower than expected gross margin as new customers with a higher degree of volume sales dilute gross margins as opposed to smaller customers with a higher degree of platform fees. The q-o-q drop in gross margin was steep, but it will be somewhat offset by price hikes in the coming quarters. Additionally, the Swedish Social Insurance Agency signed a brand-new agreement with Generic for 2+2 years, which we think is testimony to the good execution on the deal entered with them in 2020.
Lower than expected gross margin
Price increases should help gross margin in Q2
Q1: Sales growth of 22%, EBIT margin of 16.3% (21.3%)
Generic's Q1 numbers were quite eventful as there was a new strategic direction prioritising growth opportunities over margins mid-term. The company reported net sales of SEK 42.2m (+22% y-o-y, all organic), and EBIT was SEK 6.9m (7.4m). This was 5% above our expectations on sales but 14% below on EBIT. The main reason for the lower profitability was a lower than expected gross margin as new customers with a higher degree of volume sales dilute gross margins as opposed to smaller customers with a higher degree of platform fees. The q-o-q drop in gross margin was steep, but it will be somewhat offset by price hikes in the coming quarters. Additionally, the Swedish Social Insurance Agency signed a brand-new agreement with Generic for 2+2 years, which we think is testimony to the good execution on the deal entered with them in 2020.