Einhell released better than feared Q2 results, indicating that a positive inflection point has been reached. Sales rose by 2% yoy to € 277m in Q2 (eNuW: € 271m). Traffic at DIY stores remained relatively robust and DIY customers restarted to build inventories explaining why sales in DACH rebounded by 13% yoy (-24% yoy in Q1). Importantly, Power X-Change sales share rose by 3pp yoy to 46% which should reflect sustained market share gains of Einhell’s leading battery-driven power tool platform.

A higher Power X-Change share also supported profitability with gross margin rising by 4.5pp yoy to 40.6% in Q2. As a result, EBT came in ahead of expectations at € 25m in Q2 (+6% yoy, eNuW: € 23.2m), with the EBT margin remaining at a strong level of 9.0% (+0.3pp yoy). With that, Einhell was able to exceed pre-CoV margin levels and a decent inventory management (-24% yoy to € 359m in Q2) should indicate few promotional activity going forward. Thanks to the strongly improved inventories, operating cash flow rose to € 50m in H1 compared to € -79m in H2 22. Hence, FCF came in at c. € 42m in Q2.

Einhell confirmed its FY 23 guidance of 3% sales growth yoy to around € 1,060m (eNuW: € 1,061m, eCons: € 1,055m). Considering the 6% sales decline in H1, this looks challenging but not out of reach as comps should ease significantly from Q2 onwards and management expects catch-up effects from DIY partners. The EBT margin range was reiterated at 8.0-8.5% (eNuW: 8.2%, eCons: 7.7%), implying an EBT of € 85-90m (eNuW: € 87m, eCons: € 79m). The strong profitability in Q2 should provide confidence into the FY 23 bottom-line target. The key margin drivers should be improving price increases, product mix, supply-chains, easing freight costs and raw materials prices.

Additionally, Einhell announced the market entry in Thailand through the takeover of a sales partner (eNuW: low double-digit €m). Given that Einhell has a sound track record of expanding internationally via M&A, rolling-out its leading Power X-Change platform in this market should drive further market share gains. Moreover, Einhell announced to diversify its supply-chain by acquiring a sourcing company in Vietnam, which is specialized on screws, fastening materials and various handheld tools.

In sum, H1 should have been the trough and a re-accelerating sales momentum should support sentiment for the stock. BUY, PT € 240.00, based on DCF.