Acquisition of Stratford was a strategic bullseye

’24e target of SEK 500m sales implies ~20% org. CAGR

Negative Q2 revisions on the back of FX and COVID-19

Stratford acquisition could create sales synergies
On 24 June, Swedencare announced the acquisition of Stratford Pharmaceuticals, a developer of premium animal supplements. Based on ’19 pro forma numbers, sales from North America grew from 29% to 54% of total group revenue. Furthermore, sales synergies are likely to appear. Stratford has a broad vet clinic distribution network (>10,000 US clinics). This will be subject to rollouts of the PlaqueOff series, as Stratford’s portfolio lacks a proper dental segment in its portfolio. Furthermore, this will likely be rolled out as private labels, but with the ProDen PlaqueOff brand still existing on the products. This will diversify the distribution of Swedencare’s flagship product and increase the importance of ProDen PlaqueOff as an ingredient brand. In our view, this decreases the issue of the 2021 patent ending. In summary, the acquisition is a positive for several reasons.

M&A driven long-term revisions, FX/COVID-19 short term
We consolidate Stratford into our estimates, driving positive EBIT revisions of 35%-45% in ’21-‘22e. In the short term, however, we make negative revisions across the board. With the initial COVID-19 effects now felt, we find it likely that physical retail stores (ABGSCe >50% with a wide margin) have been reluctant to place orders with their distributors. We therefore lower Q2’20e sales by 21% and ‘20e sales by 11%, excluding the Stratford M&A contribution. Looking longer term, we deem the financial targets as very reachable (sales up to SEK 500m by ’24). The company needs to grow at a 20% CAGR ’19-‘24 on pro forma figures to reach the target.

The share is trading at an EV/EBIT of 43x-20x in ‘20e-‘22e
On our updated estimates, the company now trades at an EV/EBIT of 20x in ‘22e. Compared to peers, this implies it is trading 16% above animal health pee
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