While Einhell’s better-than-feared Q2 results recently indicated an upcoming recovery against easier comps in H2, market volatility especially seems to have increased especially in the DACH region (40% of sales).  While DIY stores restarted to build inventories in Q2, the effect seems to have been short-lived, explaining a weak performance in Q3 and the subsequent cut of Einhell’s FY 23 guidance.

In fact, sales should have contracted by c. 7% yoy to € 225m in Q3 despite easier comps and positive M&A effects to the tune of c. € 6m from recent acquisitions in South-east Asia. Adverse FX effects and a muted market environment contributed to the sales decline while Einhell should still have been able to gain market share on the back of its Power X-Change platform. Overall, sales are now expected to reach € 1.0bn in FY 23 (previously: € 1.06bn, eNuW: € 991m, eCons: € 1,050m). In Q4, this implies a pick-up to high single-digit growth yoy, which the company expects to achieve thanks to an expected improved order behaviour and easier comps. Our new estimate of € 991m is positioned a bit more cautious as visibility on the turnaround remains relatively low.

EBT margin is now expected to arrive at the low end of the 8.0-8.5% range in FY 23 (eNuW: 8.0%, eCons: 8.1%). Considering the lower top-line guidance, this implies a 5% miss to market expectations. While tight cost control and positive mix effects supported profitability in H1 (EBT margin 8.4%, -0.1pp yoy), EBT margin is seen to contract towards 7.5% in H2 compared to 8.4% in H2 22, mostly driven by negative operating leverage and adverse FX effects. Still, profitability should continue to exceed pre-CoV levels (5.4% EBT margin in FY 19) thanks to scale and mix effects.

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. Against this backdrop, valuation looks undemanding, trading at 8.2x PER 24e and an 11.3% FCF yield.

BUY, new PT € 225.00 (old: € 240.00), based on DCF.