Double-digit estimate cuts – ’23e adj. P/E of ~12x
Q2: weaker profitability
StrongPoint’s Q2 was above on revenues (+7% due to ALS consolidation from 1 June), but with a lower gross margin (38.8% vs our 40.5%), and ramp-up of costs related to its strategic investments in e-commerce (R&D and sales/marketing) weighed heavily on adj. EBITDA, which was NOK 12m vs. our NOK 20m estimate. The company said it would have had EBITDA margins of ~10-11% if it had only focused on its in-store solutions, which is also evident by looking at its Nordic segment, which had margins of 10.4% in Q2. Also, ALS is performing well despite only being consolidated for the month of June, with ~15% EBITDA margins. Despite this, we cut our near-term estimates materially because of the lower gross margins and higher opex than we had assumed: ‘22e EPS is down 17% and 7% for ‘23e.
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 capitalized, 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 ~12x
StrongPoint is trading at a ‘22e EV/EBITDA of 12.8x and an adj. P/E of 22.4x, which drop to 7.1x and 12.0x 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 3.5x. Lastly, our DCF points to a price range of NOK 33-92.
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