Normalising markets should add to growth and margins, EPS upgrades
DistIT, a leading distributor of IT/Technology and SDA consumer goods in the Nordic and Baltic regions, bettered our Q2 estimates bolstered by higher sales and cost management. Operating cash flow was also strong in the period, driven by better earnings, as well as a marked improvement in inventory management. In our view, the miss was gross margins, which were lower than we expected. Here, DistIT reported some stock clearance and a shift in sales towards lower margin product categories. Looking into Q3, assuming normalising markets, we expect a return to positive organic growth. Also, gross margin prospects should improve, driven by increasing private label sales and a cheaper USD in its A-brand distribution business. We upgrade EPS by 16% in 2020 and by 2%-3% in 2021-2022.
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