* Q3'26 net sales SEK 178m vs ABGSCe SEK 178m
* EBITA SEK 24m vs ABGSCe SEK 24m
* The share is trading at 7.3x/5.9x our '26e/'27e EV/EBITA
Q3 in brief: In line with ABGSCe, Pappelina strong
Overall, we believe Embellence Group's Q3 report is rather in line with our forecast. Net sales of SEK 178m was +3% y-o-y (of which 2pp organic) , in line with ABGSCe. By brand, growth was driven by Pappelina, which grew 29%: another strong signal for the ongoing DTC shift. Wall & Decò was the only brand company to not grow in the quarter, and we note that action has already been taken to replace leadership for this brand. Gross margins improved by 180bp y-o-y, driven by a higher DTC share and more efficient production. What did not develop in line with our forecast was the opex ratio, up 170bp y-o-y vs our forecasted 60bp. The report points to one-off costs for the Wall&Decò MD change (not quantified) and higher marketing and logistics costs from the larger DTC share. EBITA of SEK 24m was flat y-o-y and 2% below ABGSCe, with the margin at 13.2% (-40bp y-o-y, 60bp below ABGSCe).
Outlook: Cole & Son stabilising according to CEO's plan
In its Q2 report, the CEO stated that the sales impact of Cole & Son’s early-year commercial decisions would be more limited in H2 than in H1. So far we see this materialising, as the brand grew 3% y-o-y to SEK 31m, 7% above ABGSCe. That is SEK 1m on a base that has been SEK 30-31m for five quarters, so this is stabilisation rather than recovery. In Q3, the CEO says the channel restructuring is in its final phase and that the negative sales effect will be more limited going forward. Outlook commentary is otherwise qualitative: Borås Tapetfabrik’s external sales are expected to grow somewhat slower after an extended period of double-digit growth, Artscape relaunches a new assortment at a major customer in Q4, and the CEO looks ahead to Q4 and the coming year with confidence. In terms of DTC: Pappelina's DTC sales more than doubled, Boråstapeter's DTC "gained momentum", Artscape's DTC "continues to develop well" while Cole & Son has work to do.
Conclusion: The report shows the strength in DTC
Using yesterday's closing price and unrevised estimates, Embellence Group is trading at 7.3x/5.9x our '26e/'27e EV/EBITA vs a historical trading range of 7x-8x NTM. L3M, the share has returned +2%. The report has limited impact on our forecast, but is another sign that a DTC shift could prove fruitful for the company, as evident by Pappelina's growth spurt in recent quarters.