Duell - Potential clouded by uncertainty
Duell’s first nine months of the fiscal year were negatively impacted by adverse weather and overall weakening demand sentiment. Market is expected to remain soft, continuing to pressure the company in Q4, where the focus is on profitability and inventory management.
Some positives in the challenging quarter
Duell’s Q3 figures were anticipated to be weak following the profit warning. Duell’s net sales surpassed our estimates during the quarter as growth continued in Central Europe while sales expectedly fell in the Nordics. According to our understanding, the market slowed down further towards the end of Q3 especially in the Nordic markets. This was in line with the weaker trade data in Finland for May. The share of e-commerce sales continued to increase y/y as the trend seen in H1 continued. Despite stronger than expected sales development, profitability fell solely due to weaker than expected gross margin. The primary reason for the weak gross margin was the sales mix. On the OPEX side, Duell was able to manage costs well in line with our estimates.
Market environment to remain challenging
Duell updated its guidance for FY25 prior to the earnings release in connection with the profit warning. Duell now expects net sales with comparable FX to be at the same level or lower compared to previous year and adj. EBITA to be below last year’s level. We have made slight adjustments to our estimates for Q4, yet we continue to forecast sales decline for the quarter in line with the updated guidance. Given the expected soft market, seasonal dynamics and Central European led growth, we estimate lower gross margin also for Q4. Duell’s inventory stayed flat y/y which increases pressure for inventory management during Q4. After the updates, we forecast net debt to adj. EBITDA of 3.0x at the end of the fiscal year. We have also further lowered our estimates for FY26 as we anticipate that the dealer pre-orders will remain subdued due to slower winter and summer seasons in FY25.
ACCUMULATE with a TP of EUR 4.8 (prev. EUR 5.3)
Duell is currently priced at adj. EV/EBITDA of 7-5x and adj. P/E of 9-6x based on our estimates for the fiscal years 25-26E. Following additional downward estimate revisions and persistently high leverage we decrease our TP to EUR 4.8 (prev. EUR 5.3) while maintaining rating at ACCUMULATE. We continue to consider the current pricing somewhat modest, yet the risks related to the balance sheet remain elevated.