The sweeping tariffs announced by President Donald Trump on 02 April 2025 are reshaping global trade, introducing uncertainty, and with trade barriers likely to drive a negative global growth shock. While tariff negotiations are ongoing and subject to significant change in both directions, Gabriel’s production, particularly in Mexico, could be directly affected, with indirect impacts likely to drive a weaker outlook in H2’2024/25 and into 2025/26. The European market, also the largest market, may be somewhat more insulated against tariff impacts, however, we expect the indirect effects, such as higher lending/mortgage rates, can delay the rebound in the real estate and furniture fabrics market conditions, resulting in greater short-term challenges. The increased macro and policy uncertainty may also present an obstacle in the ongoing carve-out process of FurnMaster, a key driver of near-term uncertainty. Despite the long-term outlook remaining solid, with operating leverage to benefit from an eventual market rebound, the tariff-driven uncertainty lead us to reiterate our Reduce recommendation with a revised price target of DKK 130 per share.

FurnMaster carve-out and tariffs central to near-term uncertainty

The carve-out of FurnMaster and restructuring of its subsidiary in Mexico remain major sources of uncertainty. FurnMaster earnings remained challenged in Q1’24/25 as the restructuring saw revenues drop -6% as unprofitable contracts were cut, while its Q1’24/25 EBIT was MDKK -3.8, also impacted by one-off restructuring costs. Full impacts of tariffs on FurnMaster are unclear given constant policy changes. We assume Mexican production servicing US sales can meet USMCA with limited direct cost; however, may face up to a 25% tariff in a worst-case scenario. Despite the tariff impact being unclear, we assume the market turmoil and negative impact on business confidence will weigh on Gabriel’s sales across markets in H2’2024/25. Tariff uncertainty may also hinder the carve-out process of FurnMaster, which we assess as a key trigger for de-risking the investment case for Gabriel, by strengthening its balance sheet allowing a return to long-term growth focus.

Continuing operation show resilience but unlikely to avoid disruptions

Gabriel’s continuing Fabrics and Sample Master business units delivered 6% y/y revenue growth against a weak market backdrop. Guidance FY’24/25 for the continuing operation remains at revenue MDKK 485-530 (0-10% growth), and an EBIT MDKK 20-30. We still see potential for the continuing units to outperform the market, but see a slower overall market recovery as tariffs drive a negative growth shock for furniture fabrics markets. We have revised our group (continuing and discontinuing) revenue growth to +1.2%, down from +2.3% previously. Our projections for Q2’24/25 are slightly improved to 0.0% y/y from -2.0% y/y, as front-running of tariffs boost sales short-term. We expect cash flows from operations to continue debt repayment, and somewhat reduce the high gearing ratio (NIBD/EBITDA LTM of 6.9x following Q1’2024/25) originating from low-cyclical earnings. The carve-out of FurnMaster is likely necessary to deleverage before material investments in growth initiatives can restart.

Carve-out completion can de-risk the case, but short-term uncertainty now further elevated

Despite general stability in the Q1’24-25 results, we still see uncertainty relating to tariffs and the timing and valuation of the sale of FurnMaster. Currently, we see the carve-out as the most important short-term trigger to strengthen the balance sheet and restart a growth focus. Based on our DCF model, we still see long-term potential in Gabriel.

Diclaimer: HC Andersen Capital receives payment from Gabriel for a Digital IR and research subscription agreement. / Philip Coombes 21:15 16/04/2025.

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