Einhell released better-than-expected final Q3 results, reflecting that the company executes tight cost control amid a challenging market environment. Q3 sales decreased by 5% yoy to € 230m (prelim: € 225m). While Eastern Europe showed strong growth of 30% yoy, DACH decreased by 8% yoy as DIY partners remained cautious to buy inventories. Positively, however, the Power X-Change trend remained fully intact, growing by 3pp yoy to 45% of group sales. Einhell confirmed its adjusted FY 23 guidance of € 1.0bn revenue. This implies an 8% sales growth yoy in Q4, which we consider ambitious and therefore sit a notch lower at € 991m, implying 4% sales growth against an easier comparable base.

Importantly, profitability remained at a healthy level. A significantly improved gross margin of 39.7% (+3.7pp yoy) on the back of favorable mix (i.e. higher share of PXC) and price increases almost fully compensated for negative operating leverage and cost inflation. Hence, EBT margin decreased by only 0.7pp yoy to 8.0%, still significantly exceeding pre-pandemic levels (Q3 19: 4.5%). This also explains why Einhell confirmed its FY 23 bottom-line range of 8.0-8.5% (“low end”, eNuW: 8.0%) despite the weaker top-line.

In Q4, Einhell is seen to show a gradual recovery on both top- and bottom-line. During our recent roadshow, CFO Teichert indicated that discussions with DIY partners indicate a recovery in DACH while Einhell continues to gain market share. In FY 24e, Einhell should return to growth on the back of easier comps, sustained market share gains, positive M&A and FX effects. Hence, we model 6% sales growth yoy to € 1,050m in FY 24e and EBT margin is seen to recover slightly by 0.2pp yoy to 8.2% thanks to lower input costs, positive mix effects and FX, which should turn into a tailwind latest in H2 2024e.

Strategically, the US market should provide an attractive growth opportunity. Following its successful international expansion in e.g. Australia and Canada, a potential market entry could happen already in FY 24 via Einhell’s proven success model: Gaining market access through the acquisition of a small- to mid-sized local DIY brand and gradually replacing the assortment with best-in-class price/value PXC products. The US market looks attractive given that it is by far the largest DIY market globally and Einhell’s major rival Ryobi seems to neglect the online channel as well as Tier-2/3 DIY stores, which Einhell aims to tackle. Against this backdrop, valuation looks undemanding, trading at 8.9x PER 24e and an 11.4% FCF yield. BUY, PT € 225.00, based on DCF.