Gabriel Holding FY'2023/24: Waiting for the carve-out to unlock value

Following a delay in the publication of its 2023/24 annual report due to financial reporting challenges at its Mexican subsidiary, Gabriel’s FY’2023/24 results have been published. Group revenue was MDKK 912, within the guidance range of MDKK 880-930 and slightly below our estimate of DKKM 915. Operating profit (EBIT) was MDKK 10.9, also within the guidance range of DKK 8-15m and slightly below our estimate of DKK 12m. Despite solid topline growth in the continuing operations of 6.4% y/y, ongoing challenging market conditions and short-term uncertainty relating to the sale of its FurnMaster unit, lead us to reiterate our Reduce recommendation with a lower target price of DKK 195 (prev. DKK 225) per share following the restated numbers and updated FY’2024/25 estimates. Long-term potential remains, particularly as markets normalize, and as the carve-out of the FurnMaster business returns Gabriel’s focus back to its continued operations with a stronger balance sheet.

Significant errors confirmed in the Mexican subsidiary with a negative effect on results

Clarification regarding the Mexican subsidiary, following the verification process initiated by management highlighted several errors, including inventory values in earlier years. The financial impact after correcting the errors is MDKK -7.9 on EBIT in Q4’2023/24 and thus the full-year, and an equity write-down of MDKK 39.2 in 2022/23 and by MDKK 11.6 in 2021/22. The company has an ongoing investigation to clarify whether irregularities have been caused by fraudulent activity. However, importantly, Gabriel’s management expects that the sale of the FurnMaster units can be completed in 2024/2025 (reporting year ends 30 September 2025), reporting satisfactory interest in acquiring FurnMaster.

Good performance in continued operations despite weak markets

Looking into the continued operations, Gabriel delivered positive results in a challenging market, as the Gabriel Fabrics and SampleMaster business units together delivered revenue of MDKK 483.5, corresponding to a growth rate of 6.4%. Gross margin increased slightly to 51.7% (51.4% in 2022/23), and EBIT margin increased to 4.1% (2.9% in 2022/23) at a level of MDKK 19.7. The solid growth during weak market conditions positions the ongoing business well for an eventual market turn-around.

Sales process of FurnMaster may lead to additional costs in 2024/25

Even though errors have been corrected, the resources diverted to this issue may have delayed the ongoing sales process of the FurnMaster units. We adjust our FY’2024/25 estimates for the discontinued operations downwards slightly, also reflecting elevated carve-out-related costs.

Carve-out completion can de-risk the case but short-term uncertainties remain

Despite some clarity on the Mexican business with restated financials, we still see uncertainty about the timing of the sale of its FurnMaster units. Currently, we see this as the most important trigger in the short term, as this will de-risk the case and strengthen the balance sheet. Based on our DCF model, we still see long-term potential in Gabriel.

Disclaimer: HC Andersen Capital receives payment from Gabriel for a Digital IR agreement and research services. / Philip Coombes 08:44, 09/01/2025.