Investments in e-com continue
‘23e adj. P/E of ~10.4x, DCF points to NOK 33-92/share
We make smaller changes ahead of StrongPoint’s Q3 report on 26 October and expect revenues of NOK 327m (up 2% q-o-q) and adj. EBITDA of NOK 24m. Excluding ALS, we forecast Q3 revenues of NOK 247m (+26% y-o-y) and EBITDA of NOK 14m (5.7% margin). The high organic growth (+26%) represents a normalization, as Q3’21 was negatively affected by postponements of installations due to supply issues (components). Given the weak consumer sentiment across the Nordics and Europe, with increased uncertainty about the outlook and demand, we think retailers in general will be somewhat more cautious on capex decisions into 2023. At the same time, we argue that grocery retailers, which are the majority of StrongPoint’s customer base, should fare better. Based on this we do not make changes to our ‘23 assumptions for StrongPoint. Also, the longer-term case for automation and efficiency-boosting products and services in grocery retail is still very strong.
Investing heavily in e-commerce logistics
As part of achieving its 2025 strategic targets (NOK 2.5bn in revenues, 13-15% EBITDA margin), StrongPoint is investing heavily in its e-com logistics solutions through R&D and ramping up its sales & marketing capacity. None of these expenses are capitalised, and in H1’22 these investments meant an opex increase of ~NOK 19m compared to H1’21, or approximately half of the total opex growth. As StrongPoint continues to grow its revenues in this product segment, we expect group margins to expand into double digits (we have 10% in ’24e). However, we expect ’22e to be weak, with margins of ~5.5%.
Valuation: ‘23e adj. P/E of ~10.4x
StrongPoint is trading at a ‘22e EV/EBITDA of 11.2x and an adj. P/E of 19.8x, which drop to 6.1x and 10.4x for ‘23e. If StrongPoint reaches its 2025 targets (NOK 350m in EBITDA at the mid-point), the EPS could increase to NOK 5.4, and the P/E would drop to ~3x. Lastly, our DCF points to a price range of NOK 33-92.
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