After Einhell indicated that it will not be able to achieve its adjusted FY'23 guidance of € 1.0bn in revenues, FY sales are now expected to come in at c. € 972m (eNuW: € 991m), implying weaker-than-expected Q4'23 sales (-5% yoy), largely due to muted consumer sentiment and unfavorable FX effects. However, FY profitability should remain at a healthy level, carried by a significantly improved gross margin of 38-39% (+2-3pp yoy; eNuW) on the back of a favorable product mix (i.e. higher share of PXC), and likely leading to an EBT margin of c. 7.7% (eNuW old: 8%), thus still exceeding pre-pandemic levels (FY'19: 5%). Positively, Einhell should have been able to significantly reduce working capital (-24% yoy to € 379m) and boost FCF generation in FY'23 (eNuW: € 175m, +443% yoy).

That said, Einhell looks set to return to growth in FY'24e on the back of easier comps, sustained market share gains, positive M&A and FX effects. Hence, we model 6% yoy sales growth to € 1,030m (eNuW old: € 1,050m) with an EBT margin recovering 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 H2'24. Three promising growth avenues should help Einhell steadily grow its top and bottom line over time: 

(1) increasing the revenue share of Power X-Change products with higher margins (mid-term targets: revenue share of 70% by 2029 and 450+ product "skins" by 2027) benefiting from a structural trend towards cordless power and garden tools along with

(2) marketing investments to increase brand awareness (FC Bayern Munich, Mercedes AMG-Petronas F1), which ultimately lays the foundation for

(3) international expansion via its proven sucess model of gaining market access through the acquisition of a smaller local DIY brand and gradually replacing the assortment with best-in-class price/value PXC products. Following its successful international expansion in e.g. Australia and Canada, the US market should provide an attractive growth opportunity 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 DIY stores (eNuW: 2000-4000 stores), which Einhell aims to tackle (eNuW: US market entry in FY24e).

Against this backdrop, valuation looks undemanding, trading at 9.7x PER 24e and a 10.5% FCF yield. BUY, PT € 227 (old: € 225), based on DCF.