Net sales were up 1.8% year over year to SEK206.7m. Good sales in France explained most of the higher sales. The Nordic continues to struggle, and sales were down by 13% to SEK49m. According to management, the sales increase was positively impacted by a good product mix, which mitigated a lower sales volume.

Order intake was SEK217m, down 8% from Q2-23. The order book was SEK73m, -30%. . Customers are placing orders with a shorter time lag than before, but according to Doro's CFO, we should not read too much into the drop.

Gross margin was 44.6%, driven by a good product mix and lower freight costs in the quarter. EBIT was SEK12.6m, corresponding to an EBIT margin of 6.1% (flat last year). This was well above our estimates of SEK3.4m. Overall, good cost control and a good product mix improved operational profit in the quarter.

Order entry was SEK217m in Q2 2024 -8% y/y. The LTM order entry inched up to SEK934m, flat (-3) y/y, so the positive trend looks to flatten out. However, as a reminder, H2 is stronger in terms of sales. The order book decreased by -30% in the quarter to SEK72.8m, and -16% LTM to SEK285m.

Overall, the quarter was mixed across regions. In the Nordic region, sales decreased by 13% y/y, mainly because of smaller B2B orders than last year. Western Europe (Frabel) increased sales by 20%. This increase was explained to some extent by increased orders to mitigate higher regulatory fees kicking in the next quarter. But the region saw good demand overall. According to management, the migration trend continues from 2G to 4G and has started also in Germany. In the UK and Ireland, sales were flat.

With new products ready to launch (such as the Doro Doorbell, new feature phone models, and a new smartphone), we believe Doro will increase investment in advertising and marketing across various digital media channels. Additionally, recent hires have been made within the marketing and sales teams.

Selling expenses were SEK 97m in H1 2024. We believe that, with a new Head of Marketing and a new CEO who wants to see results, they will increase marketing expenses in the coming two quarters. Additionally, Q3 and Q4 are important quarters as Black Week and Christmas fall in the last quarter of the year. We estimate that sales and marketing costs will reach SEK 109m compared to SEK 101m in H2 2023, an increase of 8%. It is possible that we are being too conservative, but as for now, we believe it’s reasonable. This will negatively affect the EBIT margin, but we still believe it will be 9% in Q3 and 10% in Q4.

It finally looks like the new structure will be in place during H2 2024. As mentioned, we believe Germany will be very important in driving growth in the coming years. Today, Doro has a much smaller market share in Germany than in other markets. So, increasing its market share within its core products supported by the underlying migration from to 4G should add to the topline growth. Germany is a very conservative market, and we do not believe any major changes this year, but there should be a visible effect during 2025 and later years.

In the quarter, management highlighted that it will release three new feature phone models in Q4 2024 and a new smartphone in H1 2025. Julian Reade, the new CEO, emphasized the importance of developing new products such as the Doro doorbell and hearing buds. However, he stressed that their core business remains selling feature phones and smartphones adapted for older individuals, particularly those with fine motor skill difficulties. Generating strong cash flows and optimizing the sales mix is their top priority. We believe it is the right path forward for Doro.

Our growth assumptions for the full year have been adjusted mainly due to stronger sales than anticipated. We now estimate full-year 2024 sales to come in at SEK969m, up from SEK950m, an adjustment of 2%. We increased our gross margin from 40% to 42% in 2024. And a long-term gross margin of 41% after management was pretty confident a normalized level is between 40 - 42%. We think the EBIT margin will gradually improve from 7 to 11% in a few years.

Free cash flow (FCF) in the quarter was SEK32m and we expect FCF to reach SEK40m for the full year 2024E and cash conversion (FCF divided by EBITDA) to improve from 34% 2024E to 58% 2026E.

Doro's balance sheet is solid, and its net cash position for 2024E is SEK191m. We included the EUR1.9m cash to be paid (cash should be paid in Q3-24) from the IVS GmbH divestment in the calculation, so the estimated EV is SEK369m (Mcap SEK560m). As we highlighted in previous updates, Doro has an outstanding hybrid loan to Carium with a face value of SEK50m with a 5.5% interest rate. The hybrid loan is not included in the EV calculation.

With the excess cash, it will be necessary for management to work with their capital allocation in the best way from now on. The CEO mentioned that it will have an internal strategy meeting in September. We have to wait and see what comes out of the strategy meeting.

We value Doro using a DCF valuation approach backed by a multiples-based valuation. Our WACC is 13%, unchanged from our last update.

Our valuation range has been adjusted upward by c7%: SEK16 (15) to SEK41 (39), with the Base Case increasing to SEK31 (29).

Following the breakup of Doro and Careium, Doro’s valuation has remained relatively low. Market scepticism regarding the return of growth after significant cost-cutting initiatives and declining volume in feature phones put pressure on the valuation. However, Doro currently holds a dominant market position in most of its geographies, benefiting from the consistent demand driven by an ageing population.

Doro's market cap is SEK560m, with net cash at SEK191m (2024E). Its enterprise value is SEK369m. Based on our estimate, this translates to a valuation of EV/EBIT 5.3x 2024E and 4.6x 2025E. Doros est P/E 2025E is 7x.

Finding relevant peers for Doro is somewhat challenging. Doro is a niche player selling hardware, and after the break-up and given its lower sales and margins, the market continues to value Doro at depressed multiples. On EV/EBIT 2024E, Doro trades to peers at a 67% discount (median).