StrongPoint: Preparing for future growth - ABG

Q1: solid sales momentum, offset by costs near-term
ALS acquisition not closed yet
2025 ambitions imply a P/E of ~4.2x

Q1: Strong sales momentum offset by higher costs
StrongPoint reported Q1 revenues of NOK 301m, up 21% y-o-y (in Retail Technology) and 6% q-o-q. Although the company is still negatively impacted by FX (organic growth was 24%) and components shortages, the Q1 sales were another data point illustrating that Q3 was a low point. At the same time, we note that Q1 saw a material contribution from sales of ESL’s in In-Store Productivity, and StrongPoint has now delivered ~70% of the large ESL contracts that it has with NorgesGruppen and Coop in Norway (~NOK 250m in total). Gross margins were weaker, partly explained by the large ESL orders, which typically have lower GMs, as well as pressure from higher raw material prices and spot purchases of components. StrongPoint is also continuing to invest (via a higher cost base) in product development and sales/marketing capabilities for E-commerce. Thus, despite the growth in revenues, adj. EBITDA was flattish y-o-y at NOK 14m. Based on this, we have made negative estimate changes, mainly explained by a higher opex base.

M&A still on the way
StrongPoint is conducting M&As to broaden both its product scope and geographical footprint. On 14 February, it announced that it is acquiring the UK-based retail solutions company Air Link Systems (ALS). Terms and pricing are not final, but ALS has ~NOK 240m in revenues and a 10% EBITDA margin, potentially increasing ’23e adj. EBITDA by 20%. StrongPoint has exclusivity until 30 April, and today the company says it is still working on due diligence and negotiation of the share purchase agreement, but aims to conclude shortly.

2025 ambitions imply a P/E of ~4.2x
On our updated estimates, StrongPoint is now trading at 12.2x 2022e EV/EBITDA and 22.7x the adj. P/E, when excluding the NOK 4.1/sh. in net cash. If StrongPoint reaches its 2025 targets (NOK 350m in EBITDA at the mid-point),
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