Fagerhult (1K) | Buy (vs Hold) | Q2 beat, savings key

Research evidence excerpt

Fagerhult (1K) | Buy (vs Hold) | Q2 beat, savings key

Fagerhult Buy | Target Price: SEK23.00

Cost savings alternative as expected, but larger savings

Fagerhult has implemented a cost savings programme, which was largely expected. The

SEK220m yearly savings target represents a large part of the expected EBITA. The costs to

implement the measures amount to between SEK350-400m, but it is mainly non-cash.

There are of course many different measures that could have been implemented: (1) portfolio

optimisation, including potential divestments of underperforming or non-core units; (2) cost

restructuring and efficiency measures across manufacturing and overheads; (3) an increased

shift towards higher-margin, system-based and smart lighting solutions; (4) go-to-market

adjustments, including greater focus on key accounts and project business; (5) tighter capital

allocation with emphasis on cash generation and returns; (6) prioritisation of core European

markets; and (7) a lower-probability option of more structural changes, such as separations or

carve-outs.

Balance sheet considerations have probably played a role in shaping outcomes. Fagerhult’s

gearing limits the scope for more aggressive measures—particularly larger acquisitions or

extensive restructuring requiring upfront cash outlays—placing greater emphasis on self-funded

initiatives and disciplined capital allocation. That said, the presence of a financially strong main

shareholder, Latour, provides a degree of strategic flexibility and downside support if needed.

Since the company has had a focus on acquisitions to gain market share, and maybe to a lesser

extent, integrating them with similar product platforms and supplier consolidation, we think

there are substantial savings to be made.