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Duell’s H1/24 showed promising signs while uncertainties still remain ahead of the important H2. With positive adjustments to our estimates, the long-term case is intact.
Q2 growth came in stronger than we expected
Duell’s Q2 net sales grew 10.2% y/y to EUR 28.2m (EUR 25.5m in Q2/23, EUR 25.9m Evli est.). The better-than-expected growth in Rest of Europe was driven by the TranAm acquisition and organic growth in Central Europe, especially in Germany. While the higher logistics costs had a negative effect on the company’s gross margin as we expected, the higher net sales increased adj. EBITA to EUR 1.4m, above our estimate of EUR 0.8m. The non-adjusted figures were weakened by the completed RI, the fees associated were in line with previously communicated which include fee of EUR 0.9m for the subscription guarantor. All in all, Duell’s cost base developed largely as estimated during Q2. With the RI completed during the quarter and lower NWC, the company’s net debt decreased over 50% y/y to EUR 29.9m.
Cautiously optimist for the second half of the fiscal year
Duell’s Q3 (March-May) is typically the company’s strongest quarter in terms of volumes and profitability. We have adjusted our estimates for net sales upwards as we expect growth in Central Europe to continue. In the Nordics, we continue to forecast organic sales decline for Q3 while for Q4 we expect slight growth driven mainly by the softer comparison period. In terms of profitability, we estimate higher logistics costs to continue to affect Duell’s gross margin. On the other hand, the company’s profitability improvement initiatives are expected to bear fruit. As a result of higher net sales growth and further self-help, we have increased our estimates for H2. For FY 2024, we now estimate net sales of EUR 125.7m (prev. EUR 120.9m) and adj. EBITA of EUR 6.8m (EUR 5.9m).
Long-term case remains intact
Based on our updated estimates for FY 2024-2025, the company is still priced at conservative multiples of 7-5x adj. EV/EBITA and 11-6x adj. P/E. While the long-term upside is high, uncertainties regarding the end-market demand remain and Duell’s leverage is still relatively elevated. We keep our TP at EUR 0.04 with BUY-rating intact.Duell’s Q2 net sales came in at EUR 28.2m, above our estimate of EUR 25.9m, driven by the TranAm acquisition. With the higher-than-expected sales and further self-help, adj. EBITA was also higher than estimated at EUR 1.4 (Evli est. EUR 0.8m).
Duell publishes its Q2/24 results on Thursday 4th of April. We expect modest revenue growth driven by the TranAm acquisition despite a sluggish Nordic market. Valuation has become attractive, while uncertainties remain high.
Still some seasonal slowness before the summer season
The company’s net sales beat our estimates in the seasonally slow Q1 as the growth outside Nordics was even more rapid than expected. Duell’s Q2 is still considered as part of the company’s winter season and therefore the volumes are expected to remain lower when compared to the summer season/H2 of the fiscal year. In addition, we see no immediate improvement in the European powersports aftermarket. Consumer confidence across the Nordics and Europe is still at a low level yet continuing to recover from the lows seen during 2022/2023. Furthermore, based on the comments from market participants, continued weaker demand is expected especially for the beginning of 2024.
Expecting improved market towards the end of the FY
We still expect organic sales to have declined as the company’s end markets remained slow during Q2. Despite the slow market, we have increased our net sales estimate slightly for the quarter as we expect the TranAm acquisition to continue to deliver inorganic growth for Q2. In addition, we expect lower negative effect from FX. We now estimate net sales of EUR 25.9m with 1.6% y/y growth. We predict an adj. EBITA of EUR 0.8m, considering margin pressure from logistics costs, offset by the company's cost-saving actions. For the rest of the FY 2024, we anticipate organic net sales to start growing during the second half of the FY. While we expect growth, we have adjusted our gross margin estimate for H2 slightly downwards.
Valuation has turned attractive, yet uncertainties exist
With our estimates for 24-25E, Duell is priced at 8-6x adj. EV/EBITA and 11-9x adj. P/E. The current pricing presents a notable discount when compared to the European and global peers. Additionally, it presents a significant discount to the value derived from our DCF analysis. We retain our TP at EUR 0.04 while upgrading our rating to BUY (HOLD). While the current pricing presents an opportunity, we note that the company’s debt level is still elevated, and the market remains unpredictable.Duell's results exceeded our estimates for revenue and adj. EBITA. The revenue beat was largely due to our cautious net sales estimates for Rest of Europe.
Q1 figures were above our estimates
The company reported net sales of EUR 27.0m in Q1 (Q1/23: EUR 25.8m, Evli: EUR 24.5m). Net sales in the Nordics were EUR 15.1m (Q1/23: EUR 16.0m, Evli: EUR 15.2m), while net sales in Rest of Europe were EUR 11.9m (Q1/23: EUR 9.7m, Evli: EUR 9.3m). For Rest of Europe, our prediction for both organic and inorganic net sales development were too conservative. With the higher sales, the adj. EBITA was slightly higher than we estimated at EUR 0.3m (Evli: EUR 0.0m), as the company was able to improve its gross margin and had a lower comparable cost base. Due to seasonality, the company’s NWC and net debt increased q/q yet were at a lower level when compared to Q1 2023.
End-market to remain challenging throughout the FY 2024
Duell maintained its outlook for FY 2024; Duell will keep up its programme to improve profitability and strengthen the net working capital position in financial year 2024. Duell expects adjusted EBITA to increase from the level of the previous year. With the higher than anticipated organic and inorganic net sales growth in Rest of Europe, we raise our estimates especially for Q2/24 as Tran-Am acquisition will keep contributing to inorganic sales growth. The adjustments for the FY 2024 estimate are minor, we raise our net sales estimate to EUR 120.1m (prev. EUR 117.7m) and adj. EBITA to EUR 6.0m (prev. EUR 5.9m). We still anticipate soft market conditions for the whole of FY 2024 as the end-market is expected to stay weak and dealers persist in their cautious inventory management approach. In addition, the current geopolitical tensions bring upside risk to logistics costs.
HOLD with a TP of EUR 0.04 (0.04)
With no major changes to our estimates, the 2024E multiples remain elevated. On the other hand, the 2025 adj. P/E and EV/EBITA imply a discount of 5-20% relative to our main peer group and DCF indicates an upside of 26%. Considering the strengthened balance sheet post-RI and a positive start to the FY, we base our valuation on 24-25E multiples along with DCF.
Duell was able to grow its revenue 4.9% y/y during the seasonally slow Q1 as the inorganic growth supported the company’s development. With the stronger than expected sales, the adj. EBITA was slightly higher than expected at EUR 0.3m (Evli est. EUR 0.0m)
Duell publishes its Q1 2024 business report on 18th of January. The company’s RI was successful as expected yet we predict that the market softness continued to affect the company’s performance during the seasonally slow Q1.
Completed rights issue reduces the risk level
Duell completed its rights issue (RI) in December as the offering was oversubscribed. We updated the effects of the RI to our estimates in early December as the company had a subscription guarantee undertaking given by Hartwall Capital. As the RI was oversubscribed, the guarantee was not used. After the RI, there are over 1b shares outstanding and net proceeds of EUR 17.7m from the offering. With the net proceeds, Duell’s net debt to adjusted EBITDA ratio drops to roughly 3.7x at the end of 2023 and below 3.0x based on our estimates for 2024E.
Expecting slow Q1 due to seasonality and market dynamics
First quarter is typically the lowest sales quarter and includes large amount of seasonal pre-sales with discounted prices to dealers. The snowmobile and ATV product segments are important during the winter season as most of the segment items are sold during the first half of the fiscal year. We expect that the powersports market has continued to decline during the quarter and that dealers have continued to implement cautious inventory policies. We have made only slight adjustments to our estimates. We expect net sales of EUR 24.5m for Q1/24, down 5% y/y from EUR 25.8m in Q1/23. With the lower volumes, our estimate for adj. EBITA in Q1/24 is only slightly positive at EUR 0.0m (EUR -0.4m Q1/23). We expect a slight improvement in profitability due to Duell’s cost efficiency efforts, although we predict only a modest impact due to projected lower net sales.
HOLD with a TP of EUR 0.04 (EUR 0.03)
We retain our rating at HOLD yet adjust our TP to EUR 0.04 (EUR 0.03). Duell trades at 9.8x and 7.0x on adj. EV/EBITA for 2024E and 2025E. The 2024E multiples are slightly elevated, yet we continue to see the long-term upside potential albeit the visibility to the projected turnaround remains low. The 2025E adj. P/E and EV/EBITA imply a discount of 5-21% relative to our main peer group and DCF indicates an upside of 27%.
Duell announced the terms of its fully guaranteed rights offering. The strengthened balance sheet post RI lowers risk, yet continued market weakness is likely to hinder the operational performance.
Gross proceeds of EUR 20.2m, with up to 1b of new shares
Duell announced a fully guaranteed EUR 20.2m right offering, each shareholder will receive one subscription right on the record date which entitles its holder to subscribe for 33 offer shares at a subscription price of EUR 0.02. The net proceeds are expected to be roughly EUR 17.7m. The proceeds will be used to repay EUR 2.5m of its debt related to the facilities agreement and deferred purchase price of roughly GBP 4.9m related to the TranAm acquisition. In addition, the proceeds aid in executing the company's strategy for European expansion and overall self-help. We consider the left-over proceeds rather as an “insurance policy” and expect no further acquisitions in the short term. The TERP is slightly below EUR 0.03 for which the subscription price presents a discount of roughly 32.4%.
Strengthened balance sheet post RI reduces the risk level
With EUR 17.7m in net proceeds, Duell’s net debt to adjusted EBITDA ratio drops to roughly 3.7x when considering net debt at the end of Q4/23 and FY 23 adjusted EBITDA. The ratio still falls short of the company’s medium-term target for leverage of net debt to adjusted EBITDA of 2-3x yet is considerably healthier than the 7x at the end of Q4/23. Based on our current estimates, the net debt to adjusted EBITDA will fall below 3x at the end of 2024. Duell aims to repay EUR 2.5m of its credit facility, the impact on our interest expense forecasts is only slight.
HOLD (SELL) with a TP of EUR 0.03 (EUR 0.40)
Despite a stronger balance sheet reducing risk, we anticipate ongoing market weakness to continue to hinder the development operationally. The 2023 result doesn't support the current valuation, for 2024E, the valuation is relatively neutral when compared to our European peer group. The 2025E adj. EV/EBIT stands at 6.0x, which is already a low level. We see further self-help potential in 2024E and beyond, yet the visibility remains low. Considering the decline in share price since our latest update and the RI, we reduce our TP to EUR 0.03 (EUR 0.40) while adjusting our rating to HOLD (prev. SELL).
Duell’s Q4 results were largely in line with the previously released preliminary figures. Reflecting the ongoing strain on the company's balance sheet, Duell announced that it is considering a rights issue to strengthen the balance sheet. With the expected continued operational softness and no positive drivers for the stock ahead of the potential sizeable rights issue, we further downgrade our TP to EUR 0.4 (0.9) and rating to SELL (HOLD).
Q4 operative figures brought no real surprises
Duell’s net sales were roughly in line with the previously released preliminary figures. Net sales in Q4 amounted to EUR 29.9m (EUR 34.6m in Q4/22, EUR 29m Evli) and adj. EBITA was at EUR 0.2m (EUR 1.8m in Q4/22, EUR 0.1m Evli). The weak profitability was clearly driven by the soft volume development as the company’s gross margin improved y/y.
Considering a larger-than-expected rights issue
Despite the successful unloading of inventory during the Q4 leading to lower net debt levels, the company’s balance sheet remained stretched. Due to the lackluster operational results and high amount of debt, the company’s net debt to adjusted EBITDA was at 7x at the end of FY 2023. As a result, the conditions for the covenants for loans from financial institutions were not met. To strengthen its balance sheet, the company announced that it is considering a rights issue. According to preliminary plans, the size of the rights issue would be up to roughly EUR 20m. The rights issue is substantial and if completed, heavily dilutive for shareholders that do not exercise their rights, as the company’s market cap is currently approximately EUR 15m. We have not included the potential right issue to our estimates as the completion, timing and conditions of the issue are still uncertain.
SELL (HOLD) with a TP of EUR 0.4 (0.9)
As mentioned in our previous updates, we see no signs of fast recovery in consumer confidence, in addition, the company’s customers conservative approach to inventory management is likely to continue. With the continued weak outlook, stretched balance sheet and no positive drivers for the stock ahead of the potential rights issue, we further downgrade our TP to EUR 0.4 (0.9) and rating to SELL (HOLD).
The Q4 softness came as a no surprise as the company provided preliminary figures in September in conjunction with the profit warning.
Duell released a profit warning ahead of the FY 2023 earnings which will be published 9th of October. The preliminary FY 2023 figures were clearly lower than we had anticipated. We downgrade our rating to HOLD (BUY) and TP to EUR 0.9 (1.4).
Preliminary FY 2023 figures short of our estimates
In connection with the profit warning, Duell provided preliminary financial information regarding FY 2023 figures. Duell now expects net sales to be approximately EUR 118 million (EUR 124m FY 2022, EUR 125m Evli est.) and adjusted EBITA to be approximately EUR 4.5m (EUR 8.7m FY 2022, EUR 7.4m Evli est.). The preliminary figures imply net sales of roughly EUR 29m (-16% y/y) and adjusted EBITA of roughly EUR 0.1m during Q4.
Market pressure expected to persist
For FY 2023, our estimates now align with the preliminary figures provided by the company for revenue and adj. EBITA. We previously estimated revenue growth of 4.1% y/y for Q4 2023 driven by inorganic growth while we estimated that the organic sales continue to decline. With the implied net sales of EUR 29m in Q4, the company’s net sales declined roughly 16% y/y. Adj. EBITA was also clearly lower than our estimate. Our interpretation is that the weak net sales and profitability were driven by lower-than-expected volumes, FX related losses and discount sales. In addition to the preliminary figures, Duell also commented that it has been able to reduce inventory levels as planned which lowers the net debt. We now estimate that the market pressure is likely to continue as we see no signs of fast recovery in the consumer confidence across the operating regions. In addition, Duell’s customers have indicated that the conservative approach to inventory management is likely to continue. In addition to FY 2023, we have revised our estimates for coming years as we see the softness likely to continue especially during FY 2024.
HOLD (BUY) with a TP of EUR 0.9 (1.4)
With the substantial downward revisions to our estimates, we downgrade our rating to HOLD (BUY) and TP to EUR 0.9 (1.4). The beforementioned headwinds are likely to continue to affect Duell’s performance. On the other hand, the decrease in inventory levels eases short-term balance sheet pressure.
Duell has faced challenges during the FY 2023 due to the current high interest rate environment, leading to reduced demand across the powersports aftermarket value chain. Despite the recent share price strength after the company posted solid Q3 figures, we see the current valuation moderate as we estimate continued growth in Europe and improved margins going forward. We initiate coverage of Duell with a BUY rating and TP of EUR 1.4.
One-stop shop for powersports aftermarket products
Duell is a Finnish powersports aftermarket distribution company established in 1983, headquartered in Mustasaari, with warehouses and sales offices across Europe. It serves as a source for a diverse range of equipment and parts in all powersports categories, acting as a convenient one-stop-shop. With approximately 600 brand owners and manufacturers, including Duell's own brands primarily based in Asia, the company ensures a wide supply network. Dealers benefit from Duell's distinctive brand and product selection, offering over 150,000 SKUs from more than 500 brands.
Expecting growth and improved margins going forward
We estimate that the organic sales will continue to decrease during Q4 while the inorganic growth is expected to support the company’s sales. For the FY 2023, we estimate total net sales of EUR 125m with 0.8% y/y growth. In terms of profitability, we estimate that Duell will reach adj. EBITA of EUR 7.4m in 2023 with margin of 5.9%, down from EUR 8.7m and 7.0% during FY 2022. Going forward, we estimate that Duell will return to profitable growth with the help of European expansion, partly scalable cost structure and the ongoing efficiency programme.
BUY with a target price of EUR 1.4
We initiate coverage of Duell with a BUY-rating and target price of EUR 1.4. In our view, the valuation looks moderate considering the Duell’s growth prospects in the Europe and the ongoing efficiency programme that we estimate to improve the company’s margins going forward. On our estimates for 2023E, the company trades at slightly elevated multiples yet on a discount when looking at 2024E relative multiples and the value derived from our discounted cash flow model.
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Duell’s medium term (3-5 years) targets: Net sales in the range of EUR 200-300m in the medium term achieved through both organic and inorganic growth, adjusted EBITA-% at least 13%, net debt to adjusted EBITDA ratio 2-3x.
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