• Major profit warning on component shortages, see SEK 9m in Q4 EBIT
• Clearly below ABGSCe, likely material estimate revisions to both '22-'23e
• Garo to have 2-3 weak quarters, before normalisation in H2'23

Major profit warning on component shortage

Garo came out with a profit warning for Q4, indicating an EBIT of SEK 9m vs. ABGSCe SEK 50m. The result is held back by lack of components in E-Mobility, which holds back shipments significantly. The Electrification business area is doing well, hence the problems are mainly related to the EV charging business. In addition to the low shipments, the company also takes a one-off charge of SEK 15m in Q4, which is related to changing the product platform connected to the launch of the Entity product suite, which will go into production on 1 March. Apart from being a very interesting new product launch, much of the component problems should disappear with the Entity products, as those are depending on more standardised components that give Garo more flexibility regarding their choice of suppliers. Once production has been started, it will gradually ramp during ‘23. Consequently, we believe that Q4'22 through Q2'23 will be held back by lower shipment compared to our previous expectations, before we should see a normalisation in H2’23. Demand remains good, particularly in destination charging (shopping malls, commercial customers, etc), hence we are not too worried about future sales growth.

Risk for material estimate revisions - but EBIT should normalise in H2'23e

If adjusting our '22e forecast for the indicated SEK 9m EBIT in Q4, the full year EBIT comes in at SEK 153m, -21% vs. ABGSCe. If adjusting for the SEK 15m one-off, the miss on a full year basis is 13%. Looking into '23e, we believe that there should be a gradual improvement vs. Q4 already in Q1, before we see earnings back to a normalised level in Q3'23e onwards. Making this type of assumption would indicate a downside risk to '23e EBIT of 30-40%. By '24e we believe