• Drop in sales due to tough comps
• Gross margin negatively impacted by mix effects
• EBITDA revised down 8-9% for '24e-'26e

Earnings miss due to lower sales in Q1

Probi reported a slow start to the year in Q1, with negative organic sales growth and lower margins. Sales of SEK 151.7m (-13% vs ABGSCe SEK 174.1m) was mainly related to lower-than-expected sales in the US, which faced tough comps in Q1 due to an unusually high sales level in Q1'23. In addition, the gross margin was negatively impacted by product mix effects in Q1. All in all, EBITDA in Q1 of SEK 22.0m was 38% below our SEK 35.6m forecast. The gross margin should improve already in Q2'24e, according to management, although some a degree of q-o-q variance is likely to be seen for the coming quarters.

No change in outlook

FY'24e is a transition year for management where it is set to begin implementing its new strategy, and as such it has no financial targets for '24e. A new strategy and long-term financial targets for '28e were presented in conjunction with the Q3 report; this material detailed how it will focus on driving growth and improving profitability gradually over the coming years. Management is targeting a five-year sales CAGR of 6% or more, and an EBITDA margin of at least 25% by 2028.

Muted earnings in '24e, but promising longer-term

We have lowered our EBITDA forecast by 8-9% for '24e-'26e on the back of the Q1 report. 2024 is a transition year, impacting earnings growth and margins negatively in the short term. We still expect to see improved margins going forward, but the ramp-up in margin improvements has been slower compared to what we had previously assumed. We believe the company is moving in the right direction and expect to see gradual improvements in profitability over the coming years. The share is trading at an NTM EV/EBITDA of 15.1x on consensus estimates (FactSet), 5% below its historical average of 15.9x.