Strongpoint: Weak quarter, but more achievable targets - ABG

- Q1: Clean EBITDA NOK -6m - soft compared to our NOK -1m
- Targets updated - more achievable
- Estimates materially down amid sluggish H1

Q1: EBITDA of NOK -6m vs ABGSCe NOK -1m
StrongPoint's Q1 was another soft quarter, with sales down -6% y-o-y. The market is still challenging as customers are still postponing and delaying orders. Total revenues came in at NOK 359m (7% vs ABGSCe). Revenues from Noway were up 10% while revenues from Sweden were down 8% y-o-y, respectively. COGS came in slightly higher than our estimates, giving a gross margin of 36.2% vs our estimate of 40.0%. Higher personnel expenses is still affecting the company, especially in Sweden and the Baltics where most of its employees are located. EPS came in at NOK -0.25, in line with ABGSCe. Cash flow from operations was weaker compared to Q4, at NOK 15.3m vs NOK 33.6m, mainly driven by lower income. This gives net debt of NOK 77m vs NOK 80.8m in Q4.

Targets updated - more achievable
Management has provided updated targets. It now targets revenues of NOK 1.5-1.8bn in '25 vs. NOK 2.5bn previously. Additionally, they target EBITDA margin of 4-6% vs. 13-15% previously. The updated targets come amid challenging market conditions and postponements of projects. Note that '23 revenue was NOK 1.35, i.e mid-range target implies a growth of ~22%. '23 EBITDA was 0%.

We argue that the new targets are achievable considering the new deal with Spain's largest retailer, Mercadona. According to IR, Mercadona has committed to StrongPoint's solution, and is planning to implement it in more stores going forward. Note that revenues from Mercadona will be negligible in '24, and a larger part will come in H1'25, gradually ramping up throughout '26-'28. We estimate that full implementation in Mercadona would translate to NOK 750-800m in revenue to StrongPoint (Mercadona has ~27% market share in Spain). StrongPoint also mentioned that CashGuard Connect is set to be made available to other grocery retailers by the end of '25. The company estimates that the total market potential for its solution is >EUR 250m in Spain alone.

Estimates materially down amid sluggish H1
Due to the weak report, we will likely take down our '24e estimates materially.

Länk till analysen i sin helhet: https://cr.abgsc.com/foretag/StrongPoint/Equity-research/2024/4/strongpoint---weak-quarter-but-more-achievable-targets/