GN Store Nord Earnings: Audio Business’ Struggles Worse Than Expected

We are maintaining our fair value estimate of DKK 270 for narrow-moat GN Store Nord GN despite yet another challenging quarter of performance in the Audio business. The hearing segment has managed to partly mitigate Audio’s deterioration, and the cost-cutting has prevented the Audio margin from collapsing. We currently view shares as undervalued.

The Audio business, the enterprise and the consumer parts in particular, took a nosedive in the quarter. We assumed rough performance here for GN and were expecting challenging results following Demant’s commentary on yesterday’s call regarding the environment in Audio, but negative 18% growth overall and negative 23% in enterprise were below our already low projections. GN underestimated the severity of the market lull, which resulted in the guidance downgrade for Audio. Cost management initiatives helped soften the blow from revenue deterioration, so the updated margin guidance in this segment was only slightly below previous targets. Concerning to us is a rather downbeat view from the company regarding market recovery, which we assumed would occur late 2023-early 2024; this may be too optimistic now.

The hearing segment did rather well, with 15% organic growth, albeit off of fairly easy comparisons. Unlike Demant, almost all the growth came from the unit volume rather than the pricing side, as the company is now a year removed from the rollout of Omnia. Further, strong growth in lower-price channels has a depressing effect on pricing. Raised revenue guidance in hearing on the strength of first-half performance didn’t carry over to margins, which management attributed to investments and remaining market uncertainty.