StrongPoint - Divests non-core, non-growing business

Sells Cash Security, a non-core (non-growing) segment ~8. 5x EV/EBITDA, above its own ’21e multiple Full focus on core business - funds can be used for M&A Selling non-core business at EV/EBITDA ~8. 5x StongPoint divests its Cash Security business. This is a small part of the company: 6-7% of group EBITDA and non-core.

The selling price is EUR 7. 3m of which EUR 2. 6m is paid at closing while the remaining is tied to an earnout based on sales in 2021 and 2022.

Transaction multiple is EV/EBITDA ~8. 5x if a assume a normalised EBITDA of NOK 9m, while the group is trading on 7. 9x in 2021.

However, note that Cash Security is a volatile and non-growing business and should therefore have a materially lower multiple than the rest of the business. Q4 gain and debt free StrongPoint says they will book a gain in Q4 of EUR 4. 6m.

Assuming the whole EUR 7. 3m will be paid, StrongPoint will be debt free: We have net debt YE 2021e of NOK 77m (incl. IFRS 16).

Optimizing its portfolio – funds likely to be used for M&A Cash security is a very lumpy business (2018: NOK 3m in EBITDA, 2019: NOK 13. 5m, 2020e: NOK 6. 6m) and depends on large orders.

Hence, the divestment will significantly reduce the earnings volatility for the company. Post the transaction, StrongPoint should be able to focus even more on the core, fast growing business segment Retail Technology. We expect the funds from the acquisition to be deployed for a Retail Technology acquisition.

Potential acquisition targets could either be an established Retail Technology company in a new market, where StrongPoint can boost the company’s growth by introducing its own high quality products or some new technology that it can add to its portfolio.