Analyst despite GN share plunge: "In the long term, it should strengthen GN"

Søren Løntoft Hansen, senior analyst at Sydbank, believes GN’s latest decision may well be right, but that investors are punishing the timing and the short-term impact on growth.
Photo: Sydbank
Photo: Sydbank
AF MARKETWIRE

The GN share price plummeted on Tuesday morning as the company decided to reorganize its consumer business and took the top off its growth forecast for the year.

The announcement comes just over a month after the company held a capital markets day for investors and analysts where the plans were not mentioned.

This may have contributed to the negative reaction among investors, says Søren Løntoft Hansen, senior analyst at Sydbank.

Following the news, the share was sent down 7.9% to DKK 206.10 (USD 29.7) from a plus before the announcement.

”This adds to investor uncertainty,” says Løntoft Hnasen, referring to the prolonged crisis the company has been in while working to reduce a massive debt following acquisitions and rising interest rates.

”When we see this reaction, it is also due to the fact that investors in GN have been severely tested,” he notes.

Timing is being punished

The analyst emphasizes that GN’s decision may well be the right one, but that investors are punishing the timing of the decision and the impact on growth in the short term.

”The share reacts negatively based on the short-term consequences in relation to the full-year forecast, but sometimes it hurts a bit to take action, but the pain usually passes,” says Løntoft Hansen.

The company now expects organic growth of 2-6% in 2024, compared to the previous forecast of 2-8%. At the same time, expectations for the EBITA margin are narrowed to 12-13% from the previously expected 12-14%.

Specifically, the Elite and Talk product lines will be gradually scaled back, according to GN.

The reduction comes because the investments required to keep innovation and growth in a sufficient gear have been assessed as disproportionately high.

”They have come to the realization that it will require too much investment to establish themselves with large products in such a difficult segment. That’s the calculus, and that’s why they are scaling back,” says Løntoft Hansen.

”In the long term, it should strengthen GN and provide higher cash flows. It’s a decision that has been made to achieve the profitability they want to have in the company,” he continues.

English edit by Kristoffer Grønbæk

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