Doro: A solid and stable finish to 2024
Research Update
2025-02-17
07:45
Analyst Q&A
Closed
Fredrik Reuterhäll answered 2 questions.
Doro delivered another report with solid gross and operating margins. However, continued issues in delivering the new Leva feature phones kept sales under pressure, leading to a 9% decline and bringing total sales down to SEK263m. A strong gross margin helped lift the operating margin to 15.4% despite the sales decline. The current bid from Xplora of SEK34 still in play.
Fredrik Reuterhäll
Niklas Sävås
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Net sales were down 9% Y/Y to SEK263m, below our estimates of SEK281m. Order intake was up to SEK261m, 17% from Q4-23, and the order book came in at SEK77m, 83% Y/Y pointing to higher sales next quarter. Gross margin continued to impress, reaching 46.3%, which was inline with our est. of 46%. EBIT came in at SEK40.6m, corresponding to an EBIT margin of 15.4% (8.8% last year).
Norwegian company Xplora Technologies has bid to acquire Doro on 26 September 2024, valuing the deal at approximately SEK830m. This represented a 38% premium over Doro's closing price of September 25th. Xplora, a company focused on smartwatches for children, aims to expand into the senior market by acquiring Doro. On 13 January 2025, Xplora reported that the offer had been accepted by holders of 21,666,299 shares, representing 93.33% of Doro’s total shares. However, a corrected outcome announced on 15 January revealed that the actual number of shares tendered was 20,436,299, bringing Xplora’s ownership to 88.32%, including shares acquired through a call option agreement for 1,230,000 shares. Since Xplora owns less than 90% of the shares, it cannot initiate a compulsory buy-out or delisting at the moment.
We raise our valuation range SEK18-49, with a Base Case of SEK33. However as the bid sits at SEK34 Bear and Bull case is not really valid anymore. Doro trades at an EV/Ebit multiple of 6.4x 2025E.
| Key Financials | |||||
|---|---|---|---|---|---|
| SEKm | 2023 | 2024 | 2025e | 2026e | 2027e |
| Total Revenue | 973.1 | 882.3 | 920.8 | 957.6 | 995.9 |
| Revenue Growth | 7.0% | -9.3% | 4.4% | 4.0% | 4.0% |
| EBITDA | 119.9 | 121.8 | 134.4 | 145.7 | 151.5 |
| EBIT | 68.2 | 86.6 | 92.8 | 102.5 | 106.6 |
| EBIT Margin | 7.0% | 9.8% | 10.1% | 10.7% | 10.7% |
| Net Income | 32.0 | 86.8 | 65.7 | 73.4 | 76.7 |
| EV/Sales | 0.4 | 0.7 | 0.6 | 0.6 | 0.5 |
| EV/EBIT | 5.1 | 7.2 | 6.4 | 5.5 | 5.0 |
Case
A value play with a great market position
Doro’s focus has shifted back to its core business of delivering technical solutions for seniors following the spin-off of business area Care (now Careium). When Doro decided to invest in its Care offering in 2014, it prioritised the senior phones segment less. While feature phones are undergoing a long-term downwards trend, the company has great knowledge about the seniors market and is in a favourable position to tackle the structural trend of an ageing population. We also believe Doro will be able to defend its market position in senior phones with acceptable profitability.
Doro has exited unprofitable geographical regions, a move that has been a turbocharger for profits. Doro is a cash-positive generating business and has turned into a dividend machine. Because of underinvestment in the sector and the clear market need, we also see potential for Doro to consolidate its niche market through M&A. We believe investors underappreciate this potential and can be a potential catalyst for the stock in the medium term.
We believe the DACH countries will be important for Doro’s growth. Currently, the company is building up its own sales organisation in the region, and we argue this should bear fruit in the coming quarters and throughout 2024.
Evidence
Strong market position in a small niche
Doro has a history as the market leader in senior phones, driven by its attentiveness to the specific needs of seniors. The company sells its phones to retailers and telecom companies that favour its products as they offer a higher margin, in turn giving Doro advantageous shelf space. The resellers do not want multiple brands for senior phones, and we think such deep relationships are a winning advantage.
Supportive Analysis
Even though Doro is mainly a hardware company, it delivers a gross margin of > 45% points to deep moats towards competitors.
Challenge
Decent grower
The market for seniors has been growing at a strong clip over the past decade because the seniors population is expanding and as group demand for technology has been growing. The general shift from feature phones to smartphones, driven largely by Apple and Samsung, has led to Doro’s key product, the feature phone, potentially losing relevance. Doro has long struggled to grow organically in the shrinking market for feature phones. We do not see this reversing in the years to come, and while the company may be able to come up with innovative products, it will be challenging for it to achieve substantial growth. Despite this, we are not concerned, as the market sets no value on growth in the years ahead.
Fail of integration into Xplora
There is a risk when two companies of the same size form a new entity. However, according to Xplora’s management, the initial plan is not to merge the companies but to have them operate as two separate entities. This could, however, potentially lead to challenges.
Valuation
Good business at a compelling price
Good business at a compelling price Doro is a typical value company with low growth and stable profitability. In our DCF scenarios, we model low single-digit top-line growth and operating margins of 8–13%. For 2025E, we forecast an EBIT margin of around 10%, leading to an operating income of SEK93m.
Our valuation range is SEK18 to 49 per share with a base case fair value of SEK33.
However, as the bid sits at SEK34, the Bear and Bull case is not really valid anymore. Doro trades at an EV/Ebit multiple of 6.4x 2025E.
Disclosures and disclaimers
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