Q4 setback an opportunity
CRAYON Q4 setback an opportunity We have cut our 2020–2021e adj. EBITDA by ~8–9% on the Q4 report, but view it as a temporary setback and still expect solid financial performance based on Crayon’s unique position. We reiterate our BUY but have lowered our target price to NOK75 (78) on reduced estimates.
Q4 significantly below expectations. Gross profit was ~9% below our estimate and ~7% below consensus (no geographical split in updated consensus), driven by surprisingly weak Nordic Markets gross profit (-4% YOY, after growing 17% YOY in 9M 2019). The international markets on the other hand reported gross profit growth above expectations. We understand some parts of Nordic Markets stood out on the negative, and corrective actions have been taken by management.
2020–2021e adj. EBITDA cut ~8–9%, leaving us below consensus. We have cut our 2020–2021e gross profit, adjusted EBITDA and adjusted EBIT by ~2%, 8–9% and 13–14%, respectively, on lowered forecasts for gross profit and adjusted EBITDA for Crayon’s Nordic Markets, as well as its international markets. This leaves us ~10% below consensus on 2020e adjusted EBITDA (no further consensus available).
BUY reiterated but target price lowered to NOK75 (78). While Q4 disappointed, 2019 was still a great year for Crayon and its financial prospects look solid. Also: 1) the stock remains valued below relevant high-growth peers (despite it outperforming on gross profit and earnings growth); 2) Crayon has structurally better positioning than relevant peers (i.e. no hardware exposure); which 3) makes it attractive as a potential target for large competitors (we note SoftwareONE and Softline and One Equity Partners are already shareholders). While we have lowered our target price to NOK75 on reduced estimates, we believe yesterday’s ‘speed bump’ quarterly results and subsequent ~10% share price drop present a particularly good opportunity to buy into the story. Our new target price corresponds to a 2020–2021e EV/EBITDA of 15.9– 9.9x (compared to relevant, slower growing, peers at 14.7–10x).
Q4 significantly below expectations. Gross profit was ~9% below our estimate and ~7% below consensus (no geographical split in updated consensus), driven by surprisingly weak Nordic Markets gross profit (-4% YOY, after growing 17% YOY in 9M 2019). The international markets on the other hand reported gross profit growth above expectations. We understand some parts of Nordic Markets stood out on the negative, and corrective actions have been taken by management.
2020–2021e adj. EBITDA cut ~8–9%, leaving us below consensus. We have cut our 2020–2021e gross profit, adjusted EBITDA and adjusted EBIT by ~2%, 8–9% and 13–14%, respectively, on lowered forecasts for gross profit and adjusted EBITDA for Crayon’s Nordic Markets, as well as its international markets. This leaves us ~10% below consensus on 2020e adjusted EBITDA (no further consensus available).
BUY reiterated but target price lowered to NOK75 (78). While Q4 disappointed, 2019 was still a great year for Crayon and its financial prospects look solid. Also: 1) the stock remains valued below relevant high-growth peers (despite it outperforming on gross profit and earnings growth); 2) Crayon has structurally better positioning than relevant peers (i.e. no hardware exposure); which 3) makes it attractive as a potential target for large competitors (we note SoftwareONE and Softline and One Equity Partners are already shareholders). While we have lowered our target price to NOK75 on reduced estimates, we believe yesterday’s ‘speed bump’ quarterly results and subsequent ~10% share price drop present a particularly good opportunity to buy into the story. Our new target price corresponds to a 2020–2021e EV/EBITDA of 15.9– 9.9x (compared to relevant, slower growing, peers at 14.7–10x).