STRAX posted weaker than expected topline, with revenues in Own Brands coming in at EUR6m compared to our estimate of EUR7m. The gross margin was hit due to a write-down of EUR5m. Adjusting for this, the gross margin was 17%, pushing down adj. EBIT to EUR-8.3 compared to our estimate of EUR-1m. Following the weak result, STRAX is not fulfilling the special conditions in the loan agreement with P Capital Partners (PCP). However, after the quarter, STRAX has received a waiver from PCP and the management continues to work with PCP to return to compliance. There was no news regarding the divestment of Health & Wellness or the Licensing business in the report.

The new Urbanista Malibu speaker will be released before Christmas and should be positive for sales development in the last quarter of the year. If sales volume increases, the operational margin stands to gain due to the scaling effect. Redeye estimates a growth rate of 16% next year, and 17% 2025E with an EBIT margin of 3%.

Revenue from the Distribution segment will be excluded due to STRAX's divestment of the business unit. We are increasing the WACC from 13.5% to 14% in response to a higher risk-free interest rate. We derive a valuation range of SEK0.06 (1) to SEK4.3 (5), with a base case of SEK1.30 (2.5). The share currently trading at EV/Sales of 3.2x 2023E. Given the number of challenges ahead, we strongly advocate viewing an investment in STRAX shares as a long-term commitment, underscored by unwavering trust in the management team's capacity to succeed.