Net revenue was down 15% y/y to SEK265m. This was above our estimates of SEK258m. Sales in the Nordics were down by -40%. However, in its largest region West Europe, Doro manages to increase sales to SEK108m (+1.2% y/y). For comparison, Q1 ’22 sales in West Europe were SEK67m.

EBIT was down to SEK20m, corresponding to an EBIT margin of 7.6% (16% last year). This was above our estimates of SEK13m.

COGS came in at SEK174, higher than our estimates of SEK154m but lower by SEK15m compared to Q4 ‘21. Due to hedging the US dollar, the stronger SEK during the quarter hit the gross margin to come in at 34,2%, slightly lower than our estimate.

The order entry came in at SEK232m in Q4 2022 vs SEK264m in Q4 ’21, -12%. The order book came in at SEK67m, down 10% y/y.

Nordics

Revenue was SEK49m, -40% y/y.

Due to high inventory at distributors and resellers, no new orders were placed, and the phones were sold off from resellers’ inventory. During the call, the CEO hinted that the beginning of 2023 looked a bit better and the worst decline might be behind Doro in the Nordics. We estimate flat growth in the region for the full year.

West and South Europe

Revenue was SEK107,7m, 1,2% y/y.

Strong retail customers, especially in France during the quarter. Increased demand from Orange pushed sales. A revenue of SEK107m is actually all-an time high, and the question is if this level will hold throughout 2023. There were some currency effects in the numbers, but according to management, most of the increase was from organic growth. We estimate sales in the region will decrease slightly in the coming quarters but post a revenue increase of 8% during 2023 to SEK376m.

Central and Eastern Europe

Revenue was SEK59,5m, -8,6% y/y.

Lower demand from distributors in Germany pushed revenue down. But As Doro will finalize its own sales force and a positive effect should be visible during 2023. We, therefore, estimate the region growth to circa 7%, or SEK228m

UK  and Ireland

Revenue was SEK49,1m, -15%

The negative trend in UK and Ireland continued in this quarter too. Looking at the full year, we estimate Doro to defend its market share and end the year at circa SEK162m, flat growth.

After the pandemic, Doro is now trimming its inventory and operational efficiency. Historically, Doro has always been able to deliver products to its customers without delay. This was also true during the pandemic. Now after the pandemic, there has been a bull-whip effect with full inventories out at Doro’s customers. These inventory levels should now be considerably smaller, and therefore we believe, sales should increase in the upcoming quarters.

DPO (how many days before Doro pays its bills) decreased by 4 days and DSO (how many days before Doro gets paid) was flat. It is a very healthy sign DPO and DSO are stable.

Inventory levels decreased from 25% of R12m sales in Q3’22 to 23% in Q4’22. During the conference call, Doro’s CFO highlighted that they are working to increase efficiency in the inventory, but it is a balancing act because they need to serve their customers at the right time with products.

DSI in the quarter was 202 days compared to 213 days in Q3’22. The cash conversion cycle came down to 86 days, more or less in line with last quarters.

Due to lower inventory levels working capital decreased by SEK30m.

2023 will be an interesting year when it comes to sales for Doro. The important DACH region sales team will hopefully be finalised and fully up and running during 2023. It is unclear how large the sales team will be, but it will probably be around 7-10 people.

We have increased our growth assumptions for 2023e–2025e slightly and now expect 5% sales growth in 2023e and 4% in coming years. Positive momentum in e-commerce and online sales will support growth. Management estimates that 5-10% of net sales are stemmed from online channels. Moreover, we trimmed the EBIT margin due to slightly higher selling and R&D costs but we expect the EBIT margin to close in on 8% in the long run.

We value Doro using a DCF valuation approach backed by a multiples-based valuation.

Applying Redeye’s updated rating score, the WACC for Doro has increased from 12.6% to 13.1% due to a slightly lower rating score. Our new valuation range is SEK13 to SEK30, with a base case of SEK24

Finding relevant peers for Doro is somewhat challenging. Doro is a niche player selling hardware, and after the break-up and given its lower sales and margins, the market now values Doro at low multiples. On EV/Sales, Doro trades at a 62% discount to peers and a deep discount on 2023e EV/EBIT.

An EV/EBIT of 5.2 is very low and paints the picture of very low expectations from the market. Applying the modest EV/EBIT multiple of 9x suggests a valuation of SEK23 per share inline with our DCF valuation.

The market expects Doro’s eps to decline in the coming years. The question is thus, of course, when is it time to go against the “efficient” market?

Doro is a typical value company with low growth and stable profitability. We expect 2023 to be a transition year, with 5% sales growth thanks to the ramp-up of sales activities and R&D on the cost side. For 2023, we forecast EBIT margins of around 6%, leading to EBIT of SEK61m, which translates into a 2023e EV/EBIT of 5.2. Given 11.7% ROIC for 2023e, the question is whether Doro is a deep value case or a value trap. Its net cash position at the end of the quarter was SEK68m, or SEK2.80per share. We believe the downside is limited here at around SEK15 if Doro posts modest revenue growth.

It is clear that the market has low growth expectations and that Doro’s poor capital allocation weighs on its valuation. Given no communicated financial targets and no decision on a share buyback programme or dividend policy, investors put Doro in the value trap box. If the board and management improve the capital allocation, it should be a positive trigger for the stock.

Sales CAGR 2023e-2027e: -3.6%

Sales CAGR 2028e–2032e: 4.5%

Avg. EBIT margin 2023e–2027e: 5.5%

Avg. EBIT margin 2028e–2031e: 7%

Terminal growth: 2%

Terminal EBIT margin: 7%

WACC: 13.1%

Sales CAGR 2023e–2027e: 4.2%

Sales CAGR 2028e–2032e: 6%

Avg. EBIT margin 2023e–2027e: 6.4%

Avg. EBIT margin 2028e–2031e: 8%

Terminal growth: 2%

Terminal EBIT margin: 8% WACC: 13.1%

Sales CAGR 2023e–2027e: 5%

Sales CAGR 2028e–2032e: 7%

Avg. EBIT margin 2023e–2027e: 7.7%

Avg. EBIT margin 2028e–2031e: 9.7%

Terminal growth: 2%

Terminal EBIT margin: 10%

WACC: 13.1%