• DTC comments are welcome: 8% of LTM sales
• We raise '25e-'26e EBITA by 1%
• We increase our fair value range to SEK 36-43

Q2: better momentum for the largest brands

In Q1, Boråstapeter returned to organic growth. In Q2, growth accelerated to 9% y-o-y. Coupled with a strong performance for Artscape, which grew 19% organically on a tough growth comp, and External sales advancing its positions further, the group organic growth was 4% vs 11% in Q2'24. As in previous quarters, Embellence Group's gross margin expanded, which was offset by higher opex from marketing and sales initiatives. All in all, EBITA grew by SEK 1m to SEK 26m for a 13.5% margin.

Several initiatives to strengthen DTC efforts ongoing

Ahead of the report, we had hopes for comments on the ongoing shift to DTC. The newly hired CEO, Johan Andgren, hired partly for this purpose given his experience in this kind of transition, delivered. The LTM share of DTC shares was 8% – this is the first time it has been communicated explicitly. It will be communicated on an annual basis going forward. Embellence Group has hired Kajsa Hjelm from Gina Tricot, and having done a similar transition there she will contribute valuable experience. We expect limited opex ramp-up related to this initiative, a handful of people at most. The added focus will primarily be seen through internal education and aligning certain key aspects of DTC such as e-commerce platforms.

Our FVR reflects the upper half of its historical trading range

The Embellence share is trading at 7.7x-6.9x our '25e-'26e EBITA. On our 2% higher EBITA for '25e-'27e, we raise our fair value range to SEK 36-43 (35-42), which corresponds to 7x-8.5x NTM EV/EBITA, compared to its L3y range of 6.7x-7.7x NTM trading range. Embellence Group is inching closer to its 15% EBITA margin target; we expect it to be reached in LTM terms in Q3'25e, and we furthermore forecast double-digit FCF yields for '25e-'27e.