Björn Borg: Risk/reward looks attractive despite uncertainties

We have lowered our estimates in response to expectations of slower economic growth and weaker consumer confidence. Despite these downward revisions the current valuation offers an attractive risk/reward profile, as the share price has fallen by around -17% and the expected return exceeds our required return. Consequently, we raise our recommendation to Accumulate (prev. Reduce) but lower our target price to SEK 55 per share (prev. SEK 62), mainly due to lower estimates.

Rising trade tensions expected to negatively impact demand

The escalating trade war, driven by the US administration, has heightened uncertainty and clearly poses a negative risk to the global economic outlook. While Björn Borg’s main production markets are in Asia and, to some extent, Europe, the company’s revenue is primarily generated from European countries such as Sweden, Finland, Germany, and the Netherlands. Björn Borg does have some exposure to the US through Amazon.com; however, we believe that the revenue contribution is currently modest, although the company has not disclosed specific figures. Therefore, we do not expect the direct impact of tariffs to be significant for Björn Borg. That said, we have previously identified the US as an attractive market for geographical expansion. However, the current climate of uncertainty will likely delay such efforts, although it is difficult to predict which tariffs will ultimately be implemented and how long they will remain in effect.

What we believe, however, will have a greater impact on Björn Borg are the potential indirect effects of the tariffs, such as weaker economic growth and consumer confidence. While it is difficult to estimate what the impact will be on GDP growth and consumer sentiment, consumer confidence in the EU resumed its downward trend in March, continuing the decline observed since late 2024. We expect that ongoing trade tensions will further increase uncertainty and put additional pressure on consumer confidence. Although policy changes can happen quickly, we believe restoring confidence will be a slower process.

Adjusted forecasts due to a weaker economic outlook

In light of the anticipated slowdown in economic growth and the prevailing uncertainty, we have revised our revenue estimates for 2025 and 2026 downward by approximately 3%. Consequently, our EBIT estimates have been reduced by 3-5%. We now estimate Björn Borg's growth at around 5-7% in the coming years (previously 7-8%), slightly exceeding overall market growth but falling short of its long-term financial target of at least 10% annual sales growth. We anticipate that sales growth will primarily stem from the expansion of sports apparel and footwear, however, achieving the revenue growth target will be challenging. While the company has proven its ability to successfully expand its sports apparel category, more concrete evidence of volume growth in footwear is necessary. The 2024 footwear sales increase was largely attributable to the takeover of distribution outside the Nordics, but overall volumes seem to be decreasing. In our view, significant growth will require time, as Björn Borg needs to enhance quality, design, and distribution, similar to its earlier apparel transformation.

We find Björn Borg interesting on current valuation levels

Since our latest update (Feb 24, 2025), the share price is down about -17%. Although Björn Borg is impacted by the broader market environment, we believe the magnitude of the decline is not fully justified by the underlying fundamentals. Although we expect some downward pressure on LTM earnings multiples, we believe that the medium-term earnings growth of some good 8-9% coupled with a dividend yield of some 7%, offers a total expected return above our required return. Additionally, the DCF value is also sufficiently higher than the current share price. As a result, we raise our recommendation to Accumulate (prev. Reduce) but with a lower target price of SEK 55 per share (prev. SEK 62), mainly due to lower estimates.