Arjo’s year-end report January-December 2025

Arjo reported October–December 2025 net sales of SEK 2,814M (2,989), organic sales growth of 3.4%, but margin pressure with gross margin down to 42.1% (44.7) and adjusted EBITDA falling to SEK 526M (653); adjusted operating profit was SEK 249M (375) and profit after financial items SEK 104M (245), with EPS of SEK 0.26 (0.64). Operational cash flow strengthened to SEK 600M (479) with cash conversion of 119.9% (82.3); exceptional items were SEK 68M (88) and the board proposes an unchanged dividend of SEK 0.95 per share (~SEK 259M). Management cites currency, tariffs and product-mix headwinds, says 2026 targets remain unchanged and will launch a new strategic planning process to improve competitiveness and efficiency.

Analysis

Market structure: Arjo (STO:ARJO-B) shows stable organic growth (+3.4% Q4) but margin pressure (gross margin down to 42.1%, adj. EBITDA down ~19% q/y) from currencies, tariffs and product mix — winners are cash-rich competitors and hospitals buying higher-margin integrated solutions; losers are low-margin equipment vendors exposed to tariffs and SEK volatility. The maintained dividend (SEK 0.95) and very strong Q4 cash conversion (119.9%) imply resilient free cash flow in a downside scenario, so pricing power is more a medium-term function of execution than headline revenue growth.

Risk assessment: Tail risks include a sharp SEK depreciation >10% (further margin hit), renewed tariffs or lost large tenders, and failed execution of the new strategy leading to restructuring charges >SEK 200m; these are low-probability but >€50m balance-sheet impact events. Timeframe: immediate (days) — watch FX moves and conference Q&A; short-term (weeks to April 22 AGM) — strategy narrative and management credibility; long-term (12–24 months) — margin recovery from mix and efficiency initiatives.

Trade implications: Catalyst-driven trades center on the AGM (April 22, 2026) and Q1 cadence; consider event trades sized to 2–3% portfolio positions with tight stop-losses. Options: use cheap defined-risk call spreads into May/June 2026 to capture a positive strategy re-rating while limiting premium; cross-asset impacts: modest widening pressure on small-cap Swedish corporates and potential SEK weakness — hedge FX exposure 50% for 3–6 months if headwinds persist.

Contrarian angles: Consensus may over-penalize Arjo for near-term margin softness while underweighting cash conversion and dividend resilience — a re-rating is plausible if adjusted EBITDA margins recover 200–400bps over 12 months. Historical parallel: medical-equipment names that invest in service/mobility mix (e.g., post-restructuring MedTech peers) saw 20–40% re-rates within 12 months; failure mode is slower-than-expected mix turn and persistent tariff costs.

Key Decisions for Investors

• Establish a 2–3% long position in Arjo (STO:ARJO-B) ahead of the AGM on April 22, 2026 to capture strategy-driven re-rating; add incrementally if shares fall >8% or dividend yield exceeds 4%; set an initial stop-loss at -10% and a 12-month target of +20–30% if margins recover 200–400bps.
• Buy a defined-risk call spread (buy May/June 2026 ATM call, sell +10% strike) sized to 0.5–1% portfolio to leverage potential upside from the April AGM/strategy announcement while capping premium outlay.
• Implement a pair trade: long Arjo (STO:ARJO-B) vs short Getinge (STO:GETI-B) at 1:1 notional for 1–3% portfolio exposure — rationale: Arjo’s superior Q4 cash conversion and steady dividend vs Getinge’s greater margin cyclicality; rebalance or close if relative moves >8%.
• Hedge FX/corporate risk: reduce unhedged SEK exposure by ~50% for 3–6 months (use forwards or options) to protect against further currency-driven margin degradation; underweight small-cap Swedish industrials by 1–2% and reallocate to US large-cap med-tech names (e.g., SYK, BAX) for defensive margin profiles.