The sales figure for the period was EUE19.3m, which represents a year-on-year decline of 40%. This result fell short of our estimated figure of EUR25m. However, underlying sales of Own brands Audio+42% Y/Y to EUR3.3 and Accessories +41% Y/Y to EUR3.2m points the market is picking up. Overall Strax managed to post a positive EBITDA of EUR0.2m.

Gross profit was EUR6.2m, corresponding to a gross margin of 32% (18%). This was above our estimates of 23%.

EBIT was flat and this was above our estimates of EUR-1m.

Sales in Distribution were weaker than we expected and came in at EUR12m vs our estimate of EUR16m but distribution managed to have a positive EBIT of EUR1.4, i.e. margin of 12%. This result beat our estimated figure of EUR-1m. The subdued sales can be attributed, in part, to a slower distribution of antigen tests as in Q4’22.

The Own Brands segment as a whole underperformed our expectations, generating sales of EUR 8m vs our estimation of EUR9.8m, albeit with a negative EBIT of EUR-1.7m, a margin of -22%. The weaker sales performance was primarily driven by macroeconomic drivers where consumers were still holding back.  

We've previously covered Strax's ongoing restructuring endeavours and it's clear the company is making headway, and carrying out its action plan. The leadership team now expects to finalize the divestment of Telecom Lifestyle Fashion in Q2 2023, a slight delay from the originally projected Q1 2023. The divestment of Health & Wellness, originally scheduled for Q2 2023, is likely to be deferred to Q3 2023. Likewise, the sale of a 50.1% stake in the Distribution business might also shift to the third quarter of this year.

Given the robust communication and dialogue Strax maintains with its debt holder, Proventus Capital Partners (PCP) has agreed to modify the covenants up until Q3 2023. This adjustment ensures that the management team won't be in a position to conduct forced sales, but instead can transact at a fair price when the timing aligns favourably.

Although the upcoming massive restructuring of Strax will make financial estimates more challenging, we have revised our projections to reflect the divestment of the Health & Wellness segment. According to our conversation with the management, the divestment will most likely bring in positive cash inflow to boost Strax's liquidity and working capital. Consequently, we will not make any larger adjustments compared to our Q4’22 update. We are trimming down the two different segments Distribution and Own brands somewhat.

We have modestly adjusted our growth projections downward, acknowledging that consumer demand acceleration tends to require more time. However, sales from our proprietary brand accessories (Clckr) surpassed our quarterly estimates, coming in at SEK3.2m versus the expected EUR1.7m. Sales for Audio (Urbanista), however, were inline what we anticipated, with actual sales of EUR3.3m against our estimate of EUR3.4m.

Despite prevailing conditions, the management remains optimistic for the second half of 2023, primarily fueled by the execution of novel initiatives and the anticipated product launch of Clickr. The expected key catalysts for growth within this segment are Urbanista and Clickr. As volume increases, the operational margin stands to gain from the scaling effect. Consequently, we project a positive EBIT margin in 2024 at 5% (3%), with a trajectory of continued improvement in subsequent years.

With the new estimations, we derive a valuation range of SEK0.6 (0.6) to SEK6 (6), with a base case of SEK2.9 (2.8).

Based on our 2023e estimations, Strax is trading at an EV/Sales multiple of 2. Strax Distribution's business accounts for 63% of total revenue, while Own Brands accounts for 37%. By using the EV/Sales of peers and weighting the multiple, we arrive at a peers EV/Sales of 0.7. The primary reason for Strax trading at a premium is its high debt level.

Sales CAGR 2023e–2027e: 2.3%

Sales CAGR 2028e–2032e: 5.5%

Avg. EBIT margin 2023e–2027e: 2%

Terminal growth: 2%

Terminal EBIT margin: 2%

WACC: 13.5%

Sales CAGR 2023e–2027e: 5.3%

Sales CAGR 2028e–2032e: 7%

Avg. EBIT margin 2023e–2027e: 5%

Terminal growth: 2%

Terminal EBIT margin: 5%

WACC: 13.5%

Sales CAGR 2023e–2027e: 12%

Sales CAGR 2028e–2032e: 7%

Avg. EBIT margin 2023e–2027e: 6%

Terminal growth: 2%

Terminal EBIT margin: 6%

WACC: 13.5%