Sales was SEK2299m, c2% below our estimates with a growth rate of c10%. Organic growth was c-3%, a sequential uptick from Q4 but also likely boosted by a few percentage point due to the early easter that impacted Q4 negatively with c3%. Acquisition driven growth was c12% and currency effects contributed with c1%. Lagercrantz moved two divisions from Niche Products to Control that impacted the comparison, adjusted for this Electrify was slightly below our expectations while International was above our expectations while the other divisions was broadly in-line. EBITA was c3% below our estimates and we note that the EBITA margins were solid in all divisions. We believe the deviation from our estimates was primarily due to the timing of acquisitions and seasonality within the newly acquired business units.

The cash flow in the quarter was slightly lower than our expectations driven by working capital build up. We note that the last quarters have been solid and note that working capital typically fluctuate between quarters. The inventory levels increased a bit in relation to sales and we expect Lagercrantz to drive continuous improvements in this area ahead.

The return on equity continues to be above its target of 25% and stood at 26% on a rolling-twelve-month basis. The EBITA/Working capital is at 74% where the company target is to be above 45%. We believe that Lagercrantz will continue to be well above its EBITA/Working capital target in the future due to its large and increasing ratio of product businesses in the group, which typically have higher capital expenditures but lower working capital needs.

Lagercrantz's financial position is strong with an operating net debt of SEK2.342bn and a rolling-twelve-month EBITDA of SEK1743 leading to an operating net debt/EBITDA ratio of c1.3x. Including pension liabilities and lease liabilities the net debt/EBITDA ratio is c1.6x. This is low for Lagercrantz's business and we therefore believe the company will continue to be aggressive on the acquisition front in the coming quarters despite the recently announced acquisitions of Principal Doorsets and CP Global and the increased dividend to be paid in August..

We note that the CEO letter continues to be optimistic with the comment that it looks like that a few of the challenging market segments seems to be bottoming out. Usually September is the month when the outlook for the autumn is solidified and we look forward to hear more by then. The expected lower interest rate in the second half of 2024 is a factor management believes will support a stronger market.

The gross margin declined slightly in the quarter but still on a good level. We believe a continued higher share of product businesses in Lagercrantz's portfolio of companies will support higher gross margin ahead. According to its guidance it aims to increase product sales to 85% of total sales, this will come from both acquisitions and stronger organic growth in the product businesses. Lagercrantz increased this share from 76% to 78% year over year - an all-time-high for the company.

Lagercrantz has shown stable growth across all divisions during the last years fueled by both organic growth and growth from acquisitions. Growth from acquisitions was again the main engine for growth in the quarter, a pattern we expect to continue in the coming quarters although balance by a bit stronger organic growth than we have seen in the last few quarters.

The Electrify division had a solid quarter with SEK561m in sales and SEK90m in EBITA. The organic growth was negative 5% driven by strong comparables. The business unit Cue Dee had project deliveries of cSEK45m in the quarter last year. A few business units noted an improved market sitiation and Lagercrantz singles out Elpress and Tykoflex as especially strong performers. Nordic Road Safety has most of its sales and profit during Q2 and Q3 and Lagercrantz mentioned that Q2 was strong.

The Control division was boosted by that two business units, Nikodan and MHM Modules, were moved from Niche Products. We believe the annual sales of Nikodan is cSEK200m and for MHM Modules cSEK80m equalling annual sales of cSEK280m leading to boosted sales for the division of cSEK75m for the quarter and thereby a negative change for Niche Products of cSEK75m. Disregarding this, we believe the division performed according to our expectations where Load Indicator, Nikodan, Geonor and Excidor performed well while Precimeter continue to face a tough market situation driven by the lower aluminium production in Europe. The division reached sales of SEK264m, an EBITA of SEK35m leading to a margin of c13.3% and the organic growth was c-3%. We believe the seasonal variation where Q4 and Q1 are strongest will become smaller with the added businesses as per above together with the addition of CP Global.

After a somewhat challenging Q4, TecSec came back to solid levels in Q1 with net sales of SEK538m and an EBITA of SEK98m, the EBITA margin was c18.2%, an increase year over year of c18%. Organic growth was c-3%. PcP, ARAS, Idesco and Fireco performed particularly well while CWL and R-Con was again negatively impacted by a weaker construction market. We believe CWL and R-Con will improve ahead driven by the CEO comments of a market that is bottoming out.

After a stellar Q4 report the figures for Niche products division reverted somewhat but was still solid. The EBITA margin fell from c22.2% year over year to c20.2%, and the EBITA was SEK100m in the quarter up from SEK93m (note that this is adjusted for the two business units that were moved from Niche Products to Control which led to a decrease of sales of cSEK75m for the quarter). Organic growth was c1% and sales came in at SEK495m. Asept, Wapro, SIB, and PST performed strongly while Lagercrantz saw diminishing results for the more interest sensitive companies Truxor, Westmatic and Waterproof Diving. The business environment is stable across the divisions according to the management team. Lagercrantz notes that the newly acquired company Prido continues to perform according to plan which is encouraging considering that the company is rather large making up c15% of the EBITA for the division.

The International division showed an organic growth of c-3% and reported SEK395m in sales and SEK69m in EBITA. The EBITA margin strengthened from c15.5% to c17.5%. Lagercrantz again singles out the marine businesses Libra, ISIC and Tebul as particularly strong performers along with Schmitztechnik and E-tech. NST, and a few of the ACTE-companies didn't reach the levels from last year. All-in-all a solid report for the International division which again shows that it has established itself at a higher profitability level.

Lagercrantz didn't make any acquisitions in the first quarter but completed two acquisitions shortly after the end of the quarter of Principal Doorsets Ltd and CP Global Ltd (CP Cases) from the UK. Both acquisitions are typical Lagercrantz acquisition both in terms of their niche characteristics and size.

Management continues to be positive about the prospects for acquisitions in the coming quarters. Considering Lagercrantz has a good financial position and strong cash flow generation we believe it will take advantage of this situation.

Lagercrantz announced the acquisition of Principal Doorsets, a provider of specialised fire doors, on the 12th of July. The company is based in Barnstaple/Devon in England and has an annualized sales of cGBP9m with what we believe a profitability level of c18% measured in EBITA. Principal Doorsets primary customers are healthcare establishments, educational facilities and high-end residential apartment buildings, with a focus on the South and Southwest of the UK. Lagercrantz is building a cluster around fire safety within its TecSec division where it has acquired Door and Joinery, Fireco and Supply Plus in recent years since it's head of M&A in the UK, Russell Stuart joined the company.

In a quite hectic acquisition start of July, which is common due to the approaching holiday period in most of Europe starting in August, Lagercrantz completed the acquisition of CP Global on the 17th of July. The company is based in West London, UK, and has a subsidiary in Frankford, Delaware, USA. CP Cases is a producer of protective cases and racks used for the transit and storage og mission critical equipment in both commercial and military applications. Due to the sensitivity of many of the products that are moved and stored the cases are equipped with different climate and hazard control functions. The company was founded in 1969 and has since built a large exporting footprint and currently supply its products to more than 40 countries worldwide. The company has annual sales of cGBP12m with good profitability, which we believe to be c16% measured in EBITA.

As can be seen below, Lagercrantz has clearly ramped up its acquisition pace in recent years while paying roughly the same multiples. The company updated its guidance from 5-8 acquisitions per year to 8-12 acquisitions per year in the Q2 2023/2024 report and has completed 8 acquisition the last twelve months. We believe the number of acquisitions can vary depending on the size of acquisitions and that the pace has been strong considering Lagercrantz has closed two large acquisitions.

As per below, we note that multiples are roughly at the same levels as five years ago and they have decreased in the current fiscal year. We believe the multiples can differ from year to year based on various factors and that investors should track the long term trend as an indication for a stronger or weaker ROIC ahead.

We make minor near-term and long-term revisions to our EBITA margin forecasts and our sales forecast. In the longer term, we forecast about 4% organic sales growth and a contribution from future M&A of around 8% in the years ahead. We continue to expect margins to increase slightly due to higher growth in product businesses and higher margins in (future) acquired companies. We note that the current economic climate is a risk on the downside and even if Lagercrantz is a much stronger group than it was during the last major financial crisis when sales fell 20% and the operating profit with 40% (from 2008/09-2009/10), it won’t be unaffected in a recession. We believe there are credible signs indicating that the probability of a severe recession has declined and have estimated a rebound in the latter half of 2024/2025 due to expected lower interest rates.

A negative effect that has an impact on the net profit right now continues to be financial expenses. As Lagercrantz only has floating rate debt the increased interest rate puts pressure on the net income margin. The yearly financial expenses were SEK94m in 2022/2023 and increased to SEK142m in the 2023/2024 (financial expenses were SEK39m in this quarter) and we expect an increase to around SEK170m in 2024/2025 despite the expected lower interest rates in the second half of the year. We have provided our short-term estimates per division and our long-term estimates for the group below.

We are raising our fair value range for Lagercrantz slightly upon the solid Q1 report as we increase our estimates for 2025/2026 and onwards. Our fair value range is SEK145 to SEK245 per share, with a base case fair value per share of SEK185 (previously SEK120 to SEK230 with a base case of SEK180).

For this comparison, we use FactSet consensus estimates for Lagercrantz. As our own forecasts for Lagercrantz include future M&A, the comparison to peers with our forecasts is slightly misleading. Currently, Lagercrantz is trading in line with the average of its peers in 2024E according to Factset. On our forecasts, including future M&A, and at the current share price of SEK180, Lagercrantz is trading at c24x EV/EBITA 2024/2025E (roughly equal to 2024E in the table) and a P/E of c38. We argue that Lagercrantz is reasonably priced in absolute terms but believe the discount to its key peers Indutrade, Lifco and Addtech is unfair. We believe Lagercrantz have showed its ability to scale M&A, have a strong portfolio of companies and that an important benefit is its smaller base to grow from.