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Strongpoint-Initiation-Of-Coverage.Pdf Equity Research - 22 August 2019 06:31 CET StrongPoint Reason: Initiating coverage Company sponsored research Capitalising on retail megatrends Not rated Leading provider of technology solutions to retailers We see strong growth, driven by margin pressure in retail Trading 20% below peers: ’20e adj. P/E 10x, 7% div. yield Share price (NOK) 21/08/2019 11.6 Broad product portfolio and strong position in home markets Information Technology, Norway StrongPoint is a retail technology company that sells a wide variety of STRONG.OL/STRONG NO technology solutions to increase efficiency, reduce theft, enhance customer experience, and facilitate online sales for retailers. Its product MCap (NOKm) 515 portfolio includes electronic shelf labels (ESLs), self-checkout counters, MCap (EURm) 51.6 cash management, and e-commerce solutions. The company also Net debt (EURm) 10 produces security cases for cash-in-transit and adhesive labels, which provides a good cash flow that it can reinvest in the retail technology No. of shares (m) 44.4 business. StrongPoint has strong market positions in Norway, Sweden and Free float (%) 96.8 the Baltics, and aims to grow in selected other markets such as Spain. Av. daily volume (k) 4.7 We expect strong growth, driven by margin pressure in retail The rapid growth in e-commerce is putting pressure on margins for retailers. Performance For StrongPoint, this creates a double opportunity, because the company 1) 170 delivers technology solutions that help retailers increase their profitability, 160 150 and 2) sells products that enable retailers to develop their own e-commerce 140 offerings. Moreover, cash is still used in 79% of all transactions in Europe, 130 120 creating a need for efficient cash handling. We expect these trends to drive 110 100 7% sales CAGR for StrongPoint from 2018 to 2021e. Combined with NOK 90 30m in cost savings, we expect underlying EBITDA (excl. a positive one-off 80 70 and IFRS16 effects) to double from NOK 46m in 2018 to NOK 96m in 2021e. Oct 16 Oct Apr 17 Apr Oct 17 Oct Apr 18 Apr Oct 18 Oct Apr 19 Apr Jun 17 Jun Jun 18 Jun Jun 19 Jun Feb 17 Feb Feb 18 Feb Feb 19 Feb Aug 16 Aug Dec 16 Dec Aug 17 Aug Dec 17 Dec Aug 18 Aug Dec 18 Dec Trading ~20% below peers, ’20e adj. P/E 10x, 7% div. yield StrongPoint OSE GI On our estimates, the StrongPoint share is trading ~20% below the 1m 3m 12m average of its peers. Using the lowest to the highest of peer multiples for Absolute (%) 13.2 19.1 19.8 2019e-2021e, we find an implied price range of NOK 11.4-30.3/share. Our OSE GI (%) -3.3 -6.7 -9.0 DCF valuation returns a price range of NOK 12-19/share. We estimate an Source: FactSet FCF to equity yield of 6.5-9% in 2019e-2021e, which could make room for a dividend yield of 6-8%. This compares with peers at 2-4% in the same period. The key risk to our estimates is weaker sales growth due to slower order intake, which could cause the share to drop. Lead analyst: Petter Nystrøm Øystein Elton Lodgaard NOKm 2017 2018 2019e 2020e 2021e 2019e 2020e 2021e Sales 951 1,068 1,127 1,232 1,301 P/E (x) 16.7 13.2 10.9 EBITDA 52 67 93 108 119 P/E adj (x) 11.9 10.0 8.6 EBITDA margin (%) 5.5 6.3 8.2 8.8 9.2 P/BVPS (x) 2.03 1.95 1.87 EBIT adj 20 30 38 53 64 EV/EBITDA (x) 6.6 5.4 4.6 EBIT adj margin (%) 2.1 2.8 3.3 4.3 4.9 EV/EBIT adj (x) 16.3 11.0 8.6 Pretax profit 14 26 39 49 60 EV/sales (x) 0.54 0.47 0.42 EPS rep 0.23 0.30 0.70 0.88 1.07 ROE adj (%) 18.1 21.3 23.5 EPS adj 0.51 0.80 0.98 1.16 1.35 Dividend yield (%) 5.6 6.9 8.2 Sales growth (%) -15.0 12.2 5.5 9.3 5.6 FCF yield (%) 7.0 6.7 9.5 EPS growth (%) -86.5 34.0 129.0 26.2 21.6 Net IB debt/EBITDA 1.0 0.6 0.3 Source: ABG Sundal Collier, Company data Please refer to important disclosures at the end of this report This research product is commissioned and paid for by the company covered in this report. As such, this report is deemed to constitute an acceptable minor non-monetary benefit (i.e. not investment research) as defined in MiFID II. StrongPoint Opportunities Risks The retail technology market is growing healthily, driven by StrongPoint’s earnings are to some degree dependent on e-commerce and a tough competitive landscape, forcing large product orders. If StrongPoint is unable to win large retailers to adopt new technology solutions to remain contracts from new or existing customers, it could pose a competitive. For StrongPoint, this creates a double risk to its future sales and earnings growth. The Nordic opportunity: 1) StrongPoint delivers technology solutions grocery retail market is highly concentrated and several of that help retailers improve efficiency, and 2) StrongPoint these large chains are StrongPoint customers. Losing one sells e-commerce solutions to physical retailers that have of these customers could result in a significant loss of their own online offerings. StrongPoint has a solid potential repeat business for StrongPoint. As there are some for future growth in Spain, which is a large and fragmented competing products, StrongPoint could be exposed to price market and where the cash share is very high at 87%. pressure from new or existing competitors. Other risk factors include FX, macroeconomy, warranty issues and regulatory risks. Geographical breakdown, sales, NOKm Business area breakdown, sales, NOKm 450 900 400 800 350 700 300 600 250 500 200 400 150 300 100 200 50 100 0 0 Norway Sweden Other Retail Technology Cash Security Labels Sales Sales Source: ABG Sundal Collier, Company data Source: ABG Sundal Collier, Company data Quarterly sales and adj. EBIT, NOKm Company description StrongPoint is a retail technology company that sells a 350 16.0 wide variety of technology solutions that save costs, 14.0 300 increase productivity, reduce theft or facilitate e-commerce 12.0 sales for retailers. Its product portfolio includes electronic 250 10.0 shelf labels, cash management systems, self-checkout 8.0 200 terminals, click & collect lockers and digital e-commerce 6.0 solutions. In addition, it holds strong positions in security 150 4.0 cases for cash-in-transit and in adhesive labels. The 2.0 100 company has strong positions in Norway, Sweden and the 0.0 50 Baltics and is targeting to grow significantly in Spain. -2.0 0 -4.0 quarterly sales quarterly adj. EBIT Source: ABG Sundal Collier, Company data 22 August 2019 ABG Sundal Collier 2 StrongPoint StrongPoint StrongPoint is primarily a retail technology company that also holds strong positions within adhesive labels and secure cases for transportation of cash. The market for retail technology is growing healthily driven by e-commerce and a tough competitive landscape, forcing retailers to adopt new technology solutions to remain competitive. This has resulted in a 2003-2018 sales CAGR of 8% for StrongPoint and should also continue to drive its growth. StrongPoint’s core business is to develop and sell technology solutions to retailers that increase efficiency, simplify everyday tasks and enhance the value proposition for their customers. In addition, it holds leading positions within security solutions for cash transit and in design and printing of adhesive labels. These three areas make up the company’s three segments: 1) Retail Technology, 2) Cash Security and 3) Labels. Retail Technology is by far the most important segment, with 71% of group revenues and 72% of the EBITDA. Cash Security had a limited contribution to group EBITDA in 2018, but profitability is set to increase in 2019. Labels is a steady cash generator, which contributes about 25% of group EBITDA. Cash Security and Labels are considered non-core by StrongPoint, and we therefore believe that the businesses may be sold at some point if the price is right. Overview of business model and segments Core business Other business areas Retail Technology Cash Security Labels Technology solutions for retailers Produces and sells high quality Design and production of adhesive About that increase productivity or security cases for protection of labels for consumer products or improve the shopping experience Cash-in-Transit (CIT) industrial applications Customers Grocery stores and other retailers Cash handling companies Brand owners 15% Share of total 14% sales (2018) 71% 24% Share of 3% EBITDA (2018) 72% Business Solid growth outlook and Large fluctuations in sales and Stable sales and EBITDA dynamics profitability, short-term volatility EBITDA contribution contribution Source: ABG Sundal Collier, StrongPoint Retail Technology – the real kicker StrongPoint’s core business is to deliver technology solutions to retailers that increase productivity and improve the shopping experience in-store or online. Its product portfolio includes a wide variety of products, such as electronic shelf labels (ESLs), self-checkout counters, cash management hardware and e-commerce solutions. Today, cash management and ESLs are the two most important products 22 August 2019 ABG Sundal Collier 3 StrongPoint in terms of revenue and EBITDA contribution, while Click & Collect, self-checkout counters and the E-commerce Logistics Suite are experiencing the strongest growth. Selected Retail Technology products Retail Technology geographic presence* Primary markets Partner markets Electronic shelf labels Self-checkout CashGuard Click & Collect Source: ABG Sundal Collier, StrongPoint Source: ABG Sundal Collier, StrongPoint.
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