• 24% organic sales growth y-o-y
• Improved gross margin due to price adjustments
• Opex growth to abate in the coming quarters

Q3: Sales growth of 24%, EBIT margin of 20.6% (22.6%)

In our view, Generic's Q3 results were impressive. Sales growth remained strong at 24% y-o-y (all organic), the gross margin improved 130bp q-o-q to 41.5% and opex growth y-o-y was 15% (down from 21% in Q2). This resulted in sales of SEK 43m (35m) and EBIT of SEK 8.8m (7.8m), which was 1% above ABGSCe on sales and 11% on EBIT, as the gross margin was higher and opex lower than we anticipated. The improved gross margin q-o-q was a result of price hikes and a higher proportion of revenues from the company's Saas offering. Furthermore, management does not see any need for additional hirings in the short- to medium-term.

'25e and '26e EBIT up by 6% and 5%, higher GM assumptions

We keep our sales estimates relatively unchanged, expecting continued strong sales growth in Q4 followed by a moderation to 15% y-o-y in '25e. For EBIT, we raise '25e by 6% due to higher gross margin assumptions as we think the company is approaching an inflection point where the pressure from higher SMS volumes (low GM) can be offset by proportionally higher Saas revenues (high GM). We also decrease our opex forecasts slightly on the back of the report.

EV/EBIT valuation of 17x-11x for '24e-'26e

With the positive development in Q3, the pressure on profitability from growth initiatives is likely behind us for now. Our revised forecasts imply a '25e EBIT margin of 19.4% (17.8%). We also think Generic has exciting prospects to improve communication flows when RCS messages roll out on a broader scale as it opens up the possibility to have a two-way communication and improve the user experience for home delivery, health appointments and customer support. The share is trading at an EV/EBIT of 13.4x for '25e with an expected dividend yield of 3.8% for '24e.