Gabriel Holding: Q3'23/24 earnings preview: Expecting seasonal softness but improving momentum

Gabriel Holding (Gabriel) will report its Q3 2023/24 report on Thursday, 29th August. The company has faced challenging markets in recent years as higher interest rates have reduced real estate activity in both commercial and residential sectors. However, in recent quarters, we have seen an improving rate of change in Gabriel’s revenue development - we expect to see this continue. On a year-on-year basis, we expect revenue growth to be slightly lower to flat (a lesser decline than in Q1 and Q2) as we see improving trends in the market, including an earnings beat and growing volumes from Gabriel's customer and market-leading furniture producer MillerKnoll. On a quarterly basis, we expect lower absolute revenue and EBIT in Q3 2023/24 due to seasonality. Given ongoing market challenges, we will focus on the continued positive development of Fabrics and SampleMaster, and look for further details regarding the planned carve-out of FurnMaster.

Fabrics and SampleMaster expected to maintain growth

We expect Gabriel’s Fabrics and SampleMaster business units to continue their H1 2023/24 growth in Q3. We deem the H1 2023/24 growth to be against a backdrop of a declining overall market and, therefore, seek positive momentum in markets that are slowing their rate of decline and moving towards stabilization. Fabrics and SampleMaster will be Gabriel’s continuing operations following the announcement of a planned carve-out of FurnMaster on 5th August 2024.

We expect that moderately positive development of Fabrics and SampleMaster will be offset by continued negative growth y/y of FurnMaster, leading to an overall slight revenue decline of 1-2% y/y. Gabriel Holding does not report individual business unit performance; however, we assess that Fabrics is the largest business unit, followed by FurnMaster and SampleMaster.

Q3 seasonally softer

Gabriel has historically shown some seasonality during Q3 2023/24 which is its summer period. The seasonality is more pronounced in weaker markets, and therefore, as seen in 2022/23 we expect seasonal softness in Q3. We forecast revenue of around DKK 220m, around  -1.5% for Q3 2023/24 y/y, and around 9% lower than Q2 2023/24. We anticipate a slightly negative EBIT result of DKK -0.7m, mostly resulting from softer gross profit.

We believe that improving outlooks at major furniture producers, including volume increases at MillerKnoll, in combination with improving real estate market conditions, and generally improving earnings among Danish-listed cyclical companies, set a foundation for Gabriel to maintain its EBIT guidance of DKK 8-15m, Successful delivery of these results will depend on continued positive growth of Fabrics and SampleMaster, as well as improving but still negatively developing FurnMaster.

 Carve-out of FurnMaster

Gabriel’s decision to seek a carve-out of FurnMaster, announced on 5th August 2024 as part of its new growth strategy, was not in our expectations; however, we can also see the strategic rationale.

Gabriel’s renewed growth strategy focuses on becoming “the preferred development partner and supplier of textile solutions to the segment of the furniture industry which has special requirements”. Gabriel’s textile-focused Fabrics and SampleMaster business units have realized growth despite declining markets, demonstrating clear market outperformance, which has not been true for FurnMaster. Additionally, FurnMaster is less of a pure textile-focused business, as it is engaged in full furniture production and, therefore, is also somewhat outside of the renewed strategy.

We also anticipate that a sale of FurnMaster may support debt reduction, given our assumptions that the business unit has greater working capital requirements, which have required debt financing as the business unit has grown. We will look for greater details regarding the new strategy and planned carve-out of FurnMaster and the impact its divestment may have on returns on invested capital moving forward.   

Disclaimer: HC Andersen Capital receives payment from Gabriel Holding for a DigitalIR and research agreement. / Philip Coombes 16:35