Equity Research - 01 November 2019 12:16 CET
StrongPoint Reason: Post-results comment Company sponsored research Unpolished diamond set to shine Not rated
Q3 beat due to strong Retail Technology margin Estimate changes (%) Q4 set to be strong: estimates up ~2% 2019e 2020e 2021e Strong growth potential - ’20e adj. P/E 9x, 7% div. yield Sales -1.7% -1.7% -1.6% EBIT (rep) 4.5% 2.2% 1.7% Strong EBITDA in Retail Technology of NOK 26m EPS (rep) 2.0% 2.3% 1.9% Q3 EBITDA of NOK 18m was 12% better than our estimate. The beat Source: ABG Sundal Collier was high quality as it was driven by the most important segment, Retail Share price (NOK) 01/11/2019 1 0 .8 Technology. Retail Technology EBITDA was 35% above our estimate due to a higher margin. Retail Technology sales grew 20% y-o-y, and Information Technology, Norway sales of e-commerce solutions were up ~80% y-o-y (although from a low STRONG.OL/STRONG NO base). The company also continues to show good progress with its third- party distributor concept (Roadrunners) and its new rental solution in MCap (NOKm) 477 Spain. StrongPoint rented out 80 machines in Q3, comparable to NOK 5- MCap (EURm) 46.6 6m in product sales. More rentals means that the company is building up Net debt (EURm) 10 a base of recurring revenues, but will also tie up capital. No. of shares (m) 44.4 Good business momentum continuing into Q4 Free float (%) 96.8 The good momentum seems set to persist into Q4, with continued Av. daily volume (k) 4.7 rollouts of ESLs and Vensafe upgrades in Norway, self-checkout in the Baltics and Cash Management sales/rentals in Spain. In Q4, StrongPoint Next event Q4 report: 12 Feb will also roll out its Pick & Collect solutions to 40 City Gross stores (Bergendahls) in Sweden. This will add to the company’s recurring Performance revenue base. In Cash Security, StrongPoint will deliver a large order of 160 880 CIT cases to Sberbank. The key focus areas ahead are to expand its 150 product portfolio, grow in Spain, and its e-commerce business. 140 130 120 Trading ~25% below peers, ’20e adj. P/E 9x, 7% div. yield 110 The long-term growth potential for StrongPoint is solid, driven by 100 90 favourable market trends. Retailers are facing margin pressure and will 80
need to invest in new technology to stay competitive. On our estimates, 70
Jul 17 Jul
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Jul 19 Jul
Jan 17 Jan Jan 18 Jan
the StrongPoint share is trading ~25% below the average of its peers. 19 Jan
Mar 17 Mar
Mar 18 Mar
Mar 19 Mar
Nov 16 Nov
Sep 17 Sep
Nov 17 Nov
Sep 18 Sep
Nov 18 Nov
Sep 19 Sep
Nov 19 Nov
May 17 May
May 18 May May 19 May The share is also trading at a 2020e P/E of 9x and a FCF-to-equity yield StrongPoint OSE GI of 7-10% for 2019e-2021e, which could make room for a dividend yield of 1m 3m 12m 6-9%. Our DCF valuation returns a price range of NOK 12-18/share. The Absolute (%) 4.4 -12.6 22.4 key risk to our estimates is weaker sales growth due to slower order OSE GI (%) 0.6 3.8 -1.7 intake, which could cause the share price to drop. Source: FactSet
Lead analyst: Petter Nystrøm Øystein Elton Lodgaard
2019e 2020e 2021e NOKm 2017 2018 2019e 2020e 2021e P/E (x) 15.2 12.0 9.9 Sales 951 1,068 1,108 1,210 1,280 P/E adj (x) 11.0 9.2 7.9 EBITDA 52 67 92 109 119 EBITDA margin (%) 5.5 6.3 8.3 9.0 9.3 P/BVPS (x) 1.85 1.78 1.70 EBIT adj 34 49 54 70 80 EV/EBITDA (x) 6.2 5.1 4.3 EBIT adj margin (%) 3.6 4.6 4.9 5.8 6.3 EV/EBIT adj (x) 10.6 7.9 6.4 Pretax profit 14 26 40 50 61 EV/sales (x) 0.52 0.45 0.40 EPS rep 0.23 0.30 0.71 0.90 1.09 ROE adj (%) 23.4 26.7 28.6 EPS adj 0.51 0.80 0.98 1.17 1.36 Dividend yield (%) 6.0 7.4 8.8 FCF yield (%) 7.0 7.4 10.1 Sales growth (%) -15.0 12.2 3.7 9.3 5.8 Lease adj. FCF yld (%) 7.0 7.4 10.1 EPS growth (%) -86.5 34.0 133.6 26.6 21.0 Net IB debt/EBITDA 1.1 0.7 0.3 Source: ABG Sundal Collier, Company data Lease adj. ND/EBITDA 0.9 0.6 0.3 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 EPS estimate changes, 2019e, NOK EPS estimate changes, 2020e, NOK
0.75 0.95
0.74 0.94 0.93 0.73 0.92 0.72 0.91 0.71 0.90
0.70 0.89 0.88 0.69 0.87 0.68 0.86 0.67 0.85
ABGSC FactSet Consensus Mean ABGSC FactSet Consensus Mean Source: ABG Sundal Collier, FactSet Source: ABG Sundal Collier, FactSet 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
1 November 2019 ABG Sundal Collier 2
StrongPoint
Quarterly results
Q3 EBITDA was 12% above driven by Retail Technology Q3 sales of NOK 237m were 9% below our estimate of NOK 259m. EBITDA of NOK 18m was 12% better than our estimate of NOK 16m. Adjusted EPS was NOK 0.13, 41% above our estimate of NOK 0.09. The beat was high quality as it was driven by the core Retail Technology segment, where EBITDA was 35% above our estimate. Sales in Retail Technology grew 20% y-o-y, and sales of e-commerce solutions were up ~80% y-o-y (although from a low base). The company also continues to show good progress with its third-party distributor concept (Roadrunners) and its new rental solution in Spain. A higher share of rental sales means that the company is building up a base of recurring revenue.
Retail Technology and Cash Security above, Labels below The core Retail Technology segment had EBITDA of NOK 26m, 35% above our estimate of NOK 19m. Labels EBITDA of NOK 6m was slightly above our estimate of NOK 5m, while Cash Security EBITDA of NOK -5m was below our estimate of NOK -2m.
Good momentum to continue into Q4 The good momentum seems set to continue into Q4’19, with continued rollouts of ESLs and Vensafe upgrades in Norway, combined with good order momentum in other markets. In Q4, StrongPoint will start to roll out its Pick & Collect solutions in 40 City Gross supermarkets (Bergendahls, Swedish grocery chain with 7% market share). This will add to the company’s recurring revenue base. In the Cash Security segment, StrongPoint will deliver a large order of 880 CIT cases to Sberbank in Q4’19.
1 November 2019 ABG Sundal Collier 3
StrongPoint
Estimate changes
We raise our EBIT estimates by 4.5% for 2019e, and ~2% for 2020e and 2021e as we factor in the better than expected results in Q3’19. Per segment we raise our EBITDA estimate for Retail Technology slightly due to the segment’s strong results in Q3, while we lower our EBITDA estimate for Cash Security slightly. Our EPS estimates are up by ~2% for 2019e-2021e.
Estimate changes table
P&L Old New Old New Old New NOKm 2019e 2019e Ch. 2020e 2020e Ch. 2021e 2021e Ch. Revenues 1,127 1,108 -1.7% 1,232 1,210 -1.7% 1,301 1,280 -1.6% COGS and OPEX -1,034 -1,015 -1.8% -1,123 -1,102 -1.9% -1,182 -1,161 -1.7% EBITDA 93 92 -0.1% 108 109 0.1% 119 119 0.0% D&A -55 -53 -3.2% -55 -54 -2.0% -55 -54 -2.0% EBIT 38 39 4.5% 53 54 2.2% 64 65 1.7% Pre tax profit 39 40 2.9% 49 50 2.3% 60 61 1.9% Taxes -8 -8 6.8% -10 -11 2.3% -13 -13 1.9% Net profit 31 31 2.0% 39 40 2.3% 47 48 1.9% EPS 0.70 0.71 2.0% 0.88 0.90 2.3% 1.07 1.09 1.9%
Segments Old New Old New Old New REVENUES 2019e 2019e Ch. 2020e 2020e Ch. 2021e 2021e Ch. Retail Technology 853 840 -1.6% 931 904 -2.8% 987 961 -2.7% Cash Security 118 119 0.9% 138 138 0.0% 146 146 0.0% Labels 164 166 1.0% 171 175 2.7% 176 181 3.2% Group and eliminations -8 -17 97.6% -8 -8 0.0% -8 -8 0.0% Total revenues 1,127 1,108 -1.7% 1,232 1,210 -1.7% 1,301 1,280 -1.6%
Old New Old New Old New EBITDA 2019e 2019e Ch. 2020e 2020e Ch. 2021e 2021e Ch. Retail Technology 92 96 5.1% 101 103 1.5% 109 111 1.6% Cash Security 11 9 -18.6% 15 14 -6.5% 15 14 -6.5% Labels 20 21 7.4% 22 23 6.9% 25 26 5.1% Group and eliminations -30 -34 13.7% -30 -32 6.7% -30 -32 6.7% Total EBITDA 93 92 -0.1% 108 109 0.1% 119 119 0.0%
Old New Ch. Old New Ch. Old New Ch. EBITDA margin 2019e 2019e %p 2020e 2020e %p 2021e 2021e %p Retail Technology 10.8% 11.5% 0.7% 10.9% 11.4% 0.5% 11.1% 11.5% 0.5% Cash Security 9.6% 7.8% -1.9% 11.1% 10.3% -0.7% 10.5% 9.8% -0.7% Labels 11.9% 12.6% 0.8% 12.7% 13.2% 0.5% 14.0% 14.3% 0.3% Group margin 8.2% 8.3% 0.1% 8.8% 9.0% 0.2% 9.2% 9.3% 0.1%
Source: ABG Sundal Collier, company data
1 November 2019 ABG Sundal Collier 4
StrongPoint
Detailed estimates
We forecast sales growth of 4%, 9% and 6% in 2019, 2020 and 2021, respectively, driven by strong momentum in Retail Technology. This compares to 9% growth y-o- y in H1’19, which would be 16% adjusted for the one-off sale to Alimerka in Q2’18. In 2018, revenue growth was 8% adjusted for the same one-off.
StrongPoint, historical and estimated sales StrongPoint, underlying EBITDA*
NOKm NOKm 1,400 ABGSCe 120 ABGSCe
1,200 90 1,000
800 60 600
400 30 200
0 0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019e
2020e
2021e
2019e
2020e 2021e
Source: ABG Sundal Collier, StrongPoint, Factset Source: ABG Sundal Collier, StrongPoint, Factset. *Excluding IFRS16 effects of NOK 23m and the Alimerka one-off of NOK 21.3m
In the second half of 2018, StrongPoint launched a new cost savings programme, which it expects to generate NOK 30m in annual savings, with full effect from Q1’19. Key initiatives in the programme include conversion of own offices in Belgium, France and Malaysia to partner offices. If we add the NOK 30m in cost savings and NOK 23m in annual IFRS16 effects to 2018 EBITDA of NOK 67m, we find EBITDA potential of NOK 120m. However, this excludes the upside potential from future growth.
EBITDA margin EBITDA after cost savings vs. ABGSC estimates
EBITDA margin NOKm 14% ABGSCe 140 ABGSCe 12% 120 30 10% 100 8% 80 23 6% 60 120 119 109 4% 92 40 2% 67 20 0%
0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016 2017
2018 2018 IFRS16 Cost "New" 2019e 2020e 2021e
2019e
2020e 2021e EBITDA margin Average EBITDA effect* savings EBITDA
Source: ABG Sundal Collier, StrongPoint Source: ABG Sundal Collier, StrongPoint. *H1'19 EBITDA effect of 11,375m annualised.
In our estimates, we have assumed that EBITDA will increase from NOK 67m in 2018 to NOK 92m in 2019, and further to NOK 109m in 2020 and NOK 119m in 2021.
1 November 2019 ABG Sundal Collier 5
StrongPoint
Below we show detailed estimates per segment.
Estimated and historical numbers
Profit and loss NOKm Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19e 2017 2018 2019e 2020e 2021e Revenue 250 276 233 308 288 287 237 295 951 1,068 1,108 1,210 1,280 Gross profit 130 145 113 146 138 138 114 140 479 533 530 579 613 Opex -112 -112 -92 -111 -118 -126 -98 -123 -427 -466 -438 -471 -494 EBITDA 11 18 15 22 28 22 18 25 52 67 92 109 119 -excl. IFRS16 and Alimerka one-off* 11 -3 15 22 22 16 12 19 52 46 70 86 96
Depreciation tangible assets -4 -4 -4 -6 -10 -10 -9 -10 -18 -19 -38 -39 -39 Depreciation intangible assets -5 -5 -4 -4 -4 -4 -3 -4 -14 -19 -15 -15 -15 EBIT 2 9 7 12 14 8 6 11 20 30 39 54 65 EBIT adj.** 7 14 11 17 18 12 8 15 34 49 54 70 80 Interest expenses -1 -1 -1 -1 -1 -1 -1 -1 -2 -3 -4 -4 -4 Other financial expenses 5 1 -2 -5 4 1 -1 0 -3 -1 4 0 0 Pre-tax profit 6 9 4 6 17 9 4 10 14 26 40 50 61 Taxes -1 -2 -1 -8 -4 -2 -1 -2 -4 -13 -8 -11 -13 Net income 5 7 3 -2 13 7 3 8 10 13 31 40 48
Reported EPS 0.12 0.16 0.07 -0.05 0.30 0.16 0.06 0.18 0.23 0.30 0.71 0.90 1.09 Adjusted EPS** 0.24 0.27 0.17 0.05 0.39 0.25 0.13 0.25 0.51 0.80 0.98 1.17 1.36
Key figures Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19e 2017 2018 2019e 2020e 2021e Gross margin 51.8% 52.3% 48.5% 47.3% 48.0% 48.1% 48.2% 47.3% 50.4% 49.9% 47.9% 47.9% 47.9% EBITDA margin 4.6% 6.6% 6.5% 7.3% 9.6% 7.7% 7.5% 8.4% 5.5% 6.3% 8.3% 9.0% 9.3% EBIT margin 0.8% 3.2% 2.8% 4.0% 4.9% 2.9% 2.3% 3.9% 2.1% 2.8% 3.5% 4.5% 5.1% Adj. EBIT margin 2.9% 5.1% 4.7% 5.4% 6.3% 4.3% 3.6% 5.1% 3.6% 4.6% 4.9% 5.8% 6.3%
Net debt 62 71 72 55 120 107 112 99 51 55 99 72 37 Net debt (excl. IFRS16) 62 71 72 55 55 46 56 49 51 55 49 43 30 Net debt/EBITDA 1.2x 1.1x 1.1x 0.8x 1.4x 1.2x 1.2x 1.1x 1.0x 0.8x 1.1x 0.7x 0.3x Net debt (excl. IFRS16)/EBITDA 1.2x 1.6x 1.6x 1.2x 1.0x 0.6x 0.8x 0.7x 1.0x 1.2x 0.7x 0.5x 0.3x FCF / share 0.26 0.56 0.75 0.79 1.08 Dividend / share 0.50 0.55 0.65 0.80 0.95 Payout ratio of adj. EPS 99% 68% 67% 68% 70% ATROCE 4.6% 7.2% 8.5% 12.3% 15.7% Adj. ATROCE 7.9% 11.8% 11.7% 15.8% 19.4%
Revenue by segment (NOKm) Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19e 2017 2018 2019e 2020e 2021e Retail Technology 189 211 160 196 213 222 191 214 684 756 840 904 961 Cash Security 22 19 37 74 35 26 16 42 103 152 119 138 146 Labels 41 48 38 39 43 42 40 41 175 166 166 175 181 Group and eliminations -1 -2 -1 -1 -3 -2 -10 -2 -11 -6 -17 -8 -8 Total revenue 250 276 233 308 288 287 237 295 951 1,068 1,108 1,210 1,280 -excl. Alimerka one-off 250 240 233 308 288 287 237 295 951 1,032 1,108 1,210 1,280
Revenue growth, y-o-y (%) Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19e 2017 2018 2019e 2020e 2021e Retail Technology 3% 18% 10% 11% 12% 5% 20% 9% n.a. 11% 11% 8% 6% Cash Security -20% 20% 87% 85% 63% 33% -57% -43% n.a. 47% -22% 17% 5% Labels -3% 4% -12% -10% 6% -13% 7% 3% n.a. -5% 0% 6% 4% Group and eliminations -38% -43% -61% -29% 86% 0% 693% 47% n.a. -45% 184% -52% 0% Total revenue 0% 16% 14% 19% 15% 4% 2% -4% -15% 12% 4% 9% 6% -excl. Alimerka one-off 0% 1% 14% 19% 15% 19% 2% -4% -15% 8% 7% 9% 6%
Revenue growth, y-o-y (NOKm) Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19e 2017 2018 2019e 2020e 2021e Retail Technology 6 32 15 19 23 11 32 18 n.a. 72 84 65 57 Cash Security -6 3 17 34 14 6 -21 -32 n.a. 49 -33 20 7 Labels -1 2 -5 -5 3 -6 3 1 n.a. -9 0 9 6 Group and eliminations 1 1 2 1 -1 0 -9 -1 n.a. 5 -11 9 0 Total revenue 0 39 28 49 38 11 4 -13 -168 116 40 103 70 -excl. Alimerka one-off 0 3 28 49 38 47 4 -13 -168 80 76 103 70
Source: ABG Sundal Collier, StrongPoint. *Excluding NOK 23m in annual IFRS16 effects and NOK 36m in sales and NOK 21m in EBITDA from the sale of 725 CashGuard’s to Alimerka that they had previously rented in Q2’18. **Excluding depreciation of intangible assets.
1 November 2019 ABG Sundal Collier 6
StrongPoint
Estimated and historical numbers
Retail Technology sales split (NOKm) Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19e 2017 2018 2019e 2020e 2021e Norway 58 53 43 74 71 81 56 72 n.a. 227 280 279 291 Sweden 69 60 59 53 64 68 54 61 n.a. 242 246 260 266 Baltics 24 24 27 33 42 40 36 41 n.a. 108 159 171 179 EMEA/Partners 39 74 31 36 36 33 46 40 n.a. 179 154 195 225 Total revenue 189 211 160 196 213 222 191 214 n.a. 756 840 904 961
Product sales 117 144 98 120 139 148 120 140 n.a. 479 547 587 619 Service and licenses 72 67 62 76 74 73 71 74 n.a. 277 293 318 342 Total revenue 189 211 160 196 213 222 191 214 n.a. 756 840 904 961 Recurring revenue share 38% 32% 39% 39% 35% 33% 37% 35% n.a. 37% 35% 35% 36%
EBITDA by segment (NOKm) Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19e 2017 2018 2019e 2020e 2021e Retail Technology 17 29 11 11 23 25 26 22 46 68 96 103 111 Cash Security -5 -9 2 15 6 2 -5 7 1 3 9 14 14 Labels 4 7 7 5 6 4 6 5 25 23 21 23 26 Group and eliminations -4 -9 -5 -9 -8 -9 -9 -9 -20 -27 -34 -32 -32 Total EBITDA 11 18 15 22 28 22 18 25 52 67 92 109 119 -excl. IFRS16 and Alimerka one-off 11 -3 15 22 22 16 12 19 52 46 70 86 96
EBITDA margin by segment Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19e 2017 2018 2019e 2020e 2021e Retail Technology 9.0% 13.7% 6.9% 5.6% 11.0% 11.4% 13.6% 10.3% 6.7% 9.0% 11.5% 11.4% 11.5% Cash Security -25.1% -47.9% 6.2% 20.7% 16.5% 5.9% -31.7% 16.7% 1.0% 2.0% 7.8% 10.3% 9.8% Labels 10.1% 14.2% 17.2% 13.7% 14.2% 9.3% 15.1% 12.0% 14.3% 13.8% 12.6% 13.2% 14.3% Total EBITDA 4.6% 6.6% 6.5% 7.3% 9.6% 7.7% 7.5% 8.4% 5.5% 6.3% 8.3% 9.0% 9.3%
EBITDA growth, y-o-y (%) Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19e 2017 2018 2019e 2020e 2021e Retail Technology 22% 222% 22% -21% 36% -13% 135% 100% n.a. 48% 42% 7% 8% Cash Security 440% 207% -330% 155% -207% -116% -322% -54% n.a. 200% 207% 55% 0% Labels 105% 36% -28% -40% 49% -43% -6% -10% n.a. -9% -8% 11% 11% Group and eliminations 1% 98% 62% 13% 74% 0% 96% -2% n.a. 36% 28% -6% 0% Total EBITDA 7% 173% 7% 8% 141% 21% 17% 11% n.a. 29% 37% 17% 10%
EBITDA growth, y-o-y (NOKm) Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19e 2017 2018 2019e 2020e 2021e Retail Technology 3 20 2 -3 6 -4 15 11 n.a. 22 28 7 8 Cash Security -4 -6 3 9 11 11 -7 -8 n.a. 2 6 5 0 Labels 2 2 -3 -4 2 -3 0 -1 n.a. -2 -2 2 3 Group and eliminations 0 -4 -2 -1 -3 0 -4 0 n.a. -7 -7 2 0 Total EBITDA 1 12 1 2 16 4 3 2 -59 15 25 16 11 -excl. IFRS16 and Alimerka one-off 1 -10 1 2 11 19 -3 -3 -59 -6 23 16 11
Source: ABG Sundal Collier, StrongPoint. *Excluding NOK 23m in annual IFRS16 effects and NOK 36m in sales and NOK 21m in EBITDA from the sale of 725 CashGuard’s to Alimerka that they had previously rented in Q2’18. **Excluding depreciation of intangible assets.
1 November 2019 ABG Sundal Collier 7
StrongPoint
Estimated and historical numbers Balance sheet NOKm Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19e 2017 2018 2019e 2020e 2021e Assets Intangible assets 73 65 62 60 55 51 48 45 82 60 45 29 14 Goodwill 131 128 135 141 136 134 135 135 139 141 135 135 135 Tangible assets 76 63 60 58 56 57 56 56 81 58 56 57 58 Tangible assets leasing IFRS 16 0 0 0 0 65 61 56 51 0 0 51 29 7 Other non-current assets 21 19 18 14 11 10 8 8 22 14 8 8 8 Non-current assets 301 275 274 274 323 312 304 295 324 274 295 259 223
Inventory 118 137 142 128 128 117 127 120 131 128 120 121 127 Accounts receivable 171 167 174 200 212 200 184 210 160 200 210 244 258 Prepaid expenses & other receivables 31 30 29 26 26 27 26 32 38 26 32 39 42 Bank deposits 34 24 20 27 19 24 50 57 42 27 57 63 76 Current assets 355 359 365 381 385 368 386 419 371 381 419 468 503
Total assets 656 634 640 655 708 681 690 714 696 655 714 727 725
Equity and liabilities Share capital 28 28 28 28 28 28 28 28 28 28 28 28 28 Holding of own shares 0 0 0 0 0 0 0 0 0 0 0 0 0 Other equity 239 215 221 238 238 216 222 230 254 238 230 241 254 Total equity 267 243 248 265 266 243 249 257 281 265 257 268 281
Long term interest bearing liabilities 45 44 39 50 43 37 31 31 25 50 31 31 31 Liabilities leasing IFRS 16 0 0 0 0 65 61 56 51 0 0 51 29 7 Other long term liabilities 24 24 20 21 9 9 9 9 27 21 9 9 9 Total long term liabilities 69 67 58 70 118 107 97 91 52 70 91 69 48
Short term interest bearing liabilities 52 52 53 32 31 33 74 74 68 32 74 74 74 Accounts payable 64 67 76 81 84 88 82 104 93 81 104 127 134 Taxes payable 1 1 0 3 1 0 0 0 2 3 0 0 0 Other short term liabilities 203 204 203 204 209 209 187 187 199 204 187 187 187 Total short term liabilities 320 323 333 320 324 330 344 366 363 320 366 389 396
Total equity and liabilities 656 634 640 655 708 681 690 714 696 655 714 727 725
Source: ABG Sundal Collier, StrongPoint
Estimated and historical numbers Cash flow statement NOKm Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19e 2017 2018 2019e 2020e 2021e Ordinary profit before tax 6 9 4 6 17 9 4 10 14 26 40 50 61 Tax paid 0 0 0 3 -1 -1 0 -2 4 2 -4 -11 -13 D&A 10 9 9 10 14 14 12 14 33 38 53 54 54 Payment of leasing committments 0 0 0 0 -5 -5 -5 -5 0 0 -22 -22 -22 Realised loss on financial instruments 0 0 0 0 0 0 0 0 0 0 0 0 0 Other non-cash effects 0 0 0 0 0 0 0 0 0 -1 0 0 0 Change in working capital -23 -13 -12 0 -19 24 -17 -4 -25 -47 -17 -19 -15 Cash flow from operational activities -7 5 0 19 5 40 -6 12 25 18 51 53 66
Payments for fixed assets -4 -2 -1 -4 -3 -5 -5 -5 -15 -11 -18 -18 -18 Acquisitions 0 0 0 0 0 0 0 0 0 0 0 0 0 Payment from sale of fixed assets 0 14 0 3 0 0 0 0 3 18 0 0 0 Cash flow from investment activities -4 13 -1 -1 -3 -5 -4 -5 -13 7 -17 -18 -18
Free cash flow -11 18 0 18 2 35 -11 7 11 25 33 35 48
Selling of treasury shares 0 0 0 0 0 -1 0 0 0 0 -1 0 0 Change in long-term debt 22 -6 -5 18 -8 -4 -11 0 -22 30 -23 0 0 Change in overdraft -18 1 2 -32 -1 0 46 0 50 -47 45 0 0 Dividend paid 0 -22 0 0 0 -24 0 0 -66 -22 -24 -29 -36 Cash flow from financing activities 5 -27 -3 -14 -8 -30 35 0 -39 -39 -3 -29 -36
Net cash flow -6 -9 -4 5 -7 5 25 7 -27 -14 30 6 13
Source: ABG Sundal Collier, StrongPoint
1 November 2019 ABG Sundal Collier 8
StrongPoint
Below, we illustrate the sensitivity of our estimates given different assumptions for sales growth and the EBITDA margin.
2019e EBITDA Deviation to ABGSC 2019e EBITDA Sales growth SalesSales growth growth Sales growth 92 2% 4% 6% 8% 10% 12% 0 2% 4% 6% 8% 10% 12% 7% 76 78 79 81 82 84 7% -18% -16% -14% -13% -11% -9% 8% 87 89 91 92 94 96 8% -6% -4% -2% 0% 2% 3% 9% 98 100 102 104 106 108 9% 6% 8% 10% 12% 14% 16% 10% 109 111 113 115 117 120 10% 18% 20% 22% 25% 27% 29% 11% 120 122 124 127 129 132 11% 30% 32% 35% 37% 40% 42%
EBITDA margin EBITDA 12% 131 133 136 138 141 143 margin EBITDA 12% 41% 44% 47% 50% 52% 55%
Source: ABG Sundal Collier Source: ABG Sundal Collier
2020e EBITDA Deviation to ABGSC 2020e EBITDA Sales growth SalesSales growth growth Sales growth 109 2% 4% 6% 8% 10% 12% 0 2% 4% 6% 8% 10% 12% 7% 79 81 82 84 85 87 7% -27% -26% -24% -23% -21% -20% 8% 90 92 94 96 97 99 8% -17% -15% -13% -12% -10% -9% 9% 102 104 106 108 110 112 9% -6% -4% -3% -1% 1% 3% 10% 113 115 117 120 122 124 10% 4% 6% 8% 10% 12% 14% 11% 124 127 129 132 134 136 11% 15% 17% 19% 21% 23% 26%
EBITDA margin EBITDA 12% 136 138 141 144 146 149 margin EBITDA 12% 25% 27% 30% 32% 35% 37%
Source: ABG Sundal Collier Source: ABG Sundal Collier
2019e adjusted EPS Deviation to ABGSC 2019e adjusted EPS Sales growth SalesSales growth growth Sales growth 1 2% 4% 6% 8% 10% 12% 0 2% 4% 6% 8% 10% 12% 7% 0.68 0.71 0.74 0.76 0.79 0.82 7% -30% -27% -24% -21% -19% -16% 8% 0.88 0.91 0.94 0.97 1.00 1.03 8% -10% -7% -4% 0% 3% 6% 9% 1.07 1.11 1.14 1.18 1.21 1.24 9% 10% 14% 17% 21% 24% 28% 10% 1.27 1.30 1.34 1.38 1.42 1.46 10% 30% 34% 38% 42% 46% 50% 11% 1.46 1.50 1.54 1.59 1.63 1.67 11% 50% 54% 59% 63% 67% 71%
EBITDA margin EBITDA 12% 1.65 1.70 1.75 1.79 1.84 1.88 margin EBITDA 12% 70% 75% 79% 84% 89% 93%
Source: ABG Sundal Collier Source: ABG Sundal Collier
2020e adjusted EPS Deviation to ABGSC 2020e adjusted EPS Sales growth SalesSales growth growth Sales growth 1 2% 4% 6% 8% 10% 12% 0 2% 4% 6% 8% 10% 12% 7% 0.64 0.67 0.70 0.73 0.75 0.78 7% -45% -42% -40% -38% -35% -33% 8% 0.85 0.88 0.91 0.94 0.97 1.00 8% -28% -25% -22% -20% -17% -14% 9% 1.05 1.08 1.12 1.15 1.19 1.22 9% -10% -7% -4% -1% 2% 5% 10% 1.25 1.29 1.33 1.37 1.41 1.45 10% 7% 10% 14% 17% 20% 24% 11% 1.45 1.49 1.54 1.58 1.62 1.67 11% 24% 28% 31% 35% 39% 43%
EBITDA margin EBITDA 12% 1.65 1.70 1.74 1.79 1.84 1.89 margin EBITDA 12% 41% 45% 49% 53% 57% 61%
Source: ABG Sundal Collier Source: ABG Sundal Collier
1 November 2019 ABG Sundal Collier 9
StrongPoint
Valuation
Below, we show some key facts and consensus figures for the peer group and compare this to StrongPoint. StrongPoint has lower leverage and a better growth outlook than the median of its peers. In our view, this should point to a higher valuation relative to peers. However, StrongPoint is also smaller and less diversified in terms of geography and end-market segments than some of its peers. In our view, this should point to a lower valuation relative to its peers.
Overview of key peers Retail Technology peers Sales (NOKm) CAGR EBIT CAGR EBIT margin ATROCE NIBD/EBITDA Company Products End-market segments 2019e 18-'21e 18-'21e '18-'21e '18-'21e '19e Diebold-Nixdorf Cash m., POS, self-checkout Retail, financial 40,645 1% 30% 5% 14% 4.4x Pricer ESLs Retail 974 4% 14% 9% 12% -1.4x SES-imotag ESLs Retail 2,526 39% n.a. 2% 4% 1.3x Itab Shop concepts, self-checkout Retail 5,790 2% 25% 6% 6% 4.2x Gunnebo Cash management, security Retail, financial, transp. 5,162 4% 15% 6% 9% 3.3x Datalogic Scanning, checkout, logistics Retail, industry, logistics 6,358 4% 3% 12% 15% 0.0x NCR POS, self-checkout Retail, financial, hospitality 61,314 4% 10% 12% 14% 2.9x Glory Cash management Retail, financial, gaming 19,235 3% 3% 8% n.a. n.a. Average 17,750 8% 14% 7% 11% 2.1x Median 6,074 4% 14% 7% 12% 2.9x
StrongPoint (ABGSCe) 1,108 6% 12% 5% 15% 1.1x
Source: ABG Sundal Collier for StrongPoint estimates, Factset for consensus estimates
StrongPoint’s accounting practice is somewhat different to that of peers as it expenses all R&D costs, but at the same time takes depreciation on its intangible assets. As a result, its EBIT and EPS are not comparable to those of peers. For StrongPoint we will therefore look at EBIT and EPS adjusted for depreciation of intangible assets when we compare StrongPoint’s P/E and EV/EBIT to peers’, in order to obtain a like-for-like comparison.
Peer valuation
Retail Technology peers EV / EBITDA EV / EBIT adj. P / E adj. Dividend Yield Company 2019e 2020e 2021e 2019e 2020e 2021e 2019e 2020e 2021e 2019e 2020e 2021e Diebold-Nixdorf 5.7x 5.1x 5.3x 9.7x 8.5x 7.8x -37.6x 8.2x 4.4x 1% 0% 0% Pricer 9.5x 8.5x 7.5x 12.8x 11.4x 9.7x 14.5x 13.7x 12.3x 4% 5% 5% SES-imagotag 38.3x 14.3x 7.9x ##### 30.4x 12.7x ##### 44.9x 18.9x 0% 0% 0% ITAB Shop Concept 6.6x 6.0x 5.2x 13.8x 9.9x 8.1x 13.0x 8.0x 6.5x 0% 6% 8% Gunnebo 8.9x 6.2x 5.6x 15.4x 9.4x 8.3x 10.4x 9.4x 8.2x 2% 2% 5% Datalogic 8.5x 7.9x 7.1x 11.2x 10.3x 9.0x 14.9x 14.0x 12.4x 3% 3% 3% NCR 6.4x 5.7x 5.1x 9.0x 7.7x 7.0x 10.3x 9.2x 8.8x n.a. n.a. n.a. Glory n.a. n.a. n.a. n.a. n.a. n.a. 18.9x 16.9x 15.2x 2% 2% 2% Median 8.5x 6.2x 5.6x 11.2x 9.9x 8.3x 11.7x 11.6x 10.5x 2% 2% 3%
StrongPoint (ABGSCe) 6.6x 5.4x 4.6x 11.3x 8.4x 6.9x 11.8x 9.9x 8.5x 6% 7% 8% Difference to peers -22% -13% -18% 0% -16% -18% 1% -15% -19% -66% -66% -58%
Implied share price 15.4 13.6 14.3 11.5 14.0 14.2 11.5 13.5 14.3 34.3 33.8 27.5
Source: ABG Sundal Collier for StrongPoint estimates, Factset for consensus estimates
On our estimates, StrongPoint is trading ~25% below its peers on an average of the multiples shown above. Using the lowest to the highest of the peer multiples for 2019e-2021e, we find an implied share price range of NOK 11.5-34/share.
1 November 2019 ABG Sundal Collier 10
StrongPoint
Below, we illustrate the sensitivities of different valuation multiples given different assumptions for sales growth and the EBITDA margin.
2019e adjusted P/E 2020e adjusted P/E Sales growth SalesSales growth growth Sales growth 11 2% 4% 6% 8% 10% 12% 9 2% 4% 6% 8% 10% 12% 7% 15.7x 15.1x 14.6x 14.1x 13.6x 13.1x 7% 16.7x 16.0x 15.4x 14.8x 14.2x 13.7x 8% 12.2x 11.8x 11.4x 11.1x 10.7x 10.4x 8% 12.7x 12.3x 11.8x 11.4x 11.1x 10.7x 9% 10.0x 9.7x 9.4x 9.1x 8.9x 8.6x 9% 10.3x 9.9x 9.6x 9.3x 9.0x 8.8x 10% 8.5x 8.2x 8.0x 7.8x 7.6x 7.4x 10% 8.6x 8.4x 8.1x 7.9x 7.6x 7.4x 11% 7.4x 7.2x 7.0x 6.8x 6.6x 6.4x 11% 7.4x 7.2x 7.0x 6.8x 6.6x 6.5x
EBITDA margin EBITDA 12% 6.5x 6.3x 6.2x 6.0x 5.9x 5.7x margin EBITDA 12% 6.5x 6.3x 6.2x 6.0x 5.8x 5.7x
Source: ABG Sundal Collier Source: ABG Sundal Collier
2019e adjusted EV/EBIT 2020e adjusted EV/EBIT Sales growth SalesSales growth growth Sales growth 11 2% 4% 6% 8% 10% 12% 8 2% 4% 6% 8% 10% 12% 7% 15.2x 14.6x 14.1x 13.6x 13.1x 12.7x 7% 13.6x 13.1x 12.7x 12.2x 11.8x 11.4x 8% 11.8x 11.4x 11.0x 10.7x 10.4x 10.1x 8% 10.7x 10.3x 10.0x 9.7x 9.4x 9.1x 9% 9.7x 9.4x 9.1x 8.8x 8.6x 8.3x 9% 8.7x 8.5x 8.2x 8.0x 7.8x 7.5x 10% 8.2x 7.9x 7.7x 7.5x 7.3x 7.1x 10% 7.4x 7.2x 7.0x 6.8x 6.6x 6.4x 11% 7.1x 6.9x 6.7x 6.5x 6.3x 6.2x 11% 6.4x 6.2x 6.1x 5.9x 5.8x 5.6x
EBITDA margin EBITDA 12% 6.2x 6.1x 5.9x 5.8x 5.6x 5.5x margin EBITDA 12% 5.7x 5.5x 5.4x 5.2x 5.1x 5.0x
Source: ABG Sundal Collier Source: ABG Sundal Collier
2019e EV/EBITDA 2020e EV/EBITDA Sales growth SalesSales growth growth Sales growth 6 2% 4% 6% 8% 10% 12% 5 2% 4% 6% 8% 10% 12% 7% 7.6x 7.4x 7.3x 7.1x 7.0x 6.9x 7% 6.9x 6.8x 6.7x 6.6x 6.4x 6.3x 8% 6.6x 6.5x 6.4x 6.3x 6.1x 6.0x 8% 6.1x 6.0x 5.8x 5.7x 5.6x 5.5x 9% 5.9x 5.8x 5.7x 5.6x 5.5x 5.4x 9% 5.4x 5.3x 5.2x 5.1x 5.0x 4.9x 10% 5.3x 5.2x 5.1x 5.0x 4.9x 4.8x 10% 4.9x 4.8x 4.7x 4.6x 4.5x 4.4x 11% 4.8x 4.7x 4.6x 4.5x 4.5x 4.4x 11% 4.4x 4.3x 4.2x 4.2x 4.1x 4.0x
EBITDA margin EBITDA 12% 4.4x 4.3x 4.2x 4.2x 4.1x 4.0x margin EBITDA 12% 4.0x 4.0x 3.9x 3.8x 3.8x 3.7x
Source: ABG Sundal Collier Source: ABG Sundal Collier
2019e FCF to equity yield 2020e FCF to equity yield Sales growth SalesSales growth growth Sales growth 0 2% 4% 6% 8% 10% 12% 0 2% 4% 6% 8% 10% 12% 7% 3.4% 3.7% 3.9% 4.2% 4.4% 4.7% 7% 2.5% 2.7% 3.0% 3.3% 3.5% 3.8% 8% 5.2% 5.5% 5.8% 6.1% 6.3% 6.6% 8% 4.4% 4.7% 4.9% 5.2% 5.5% 5.8% 9% 7.0% 7.3% 7.7% 8.0% 8.3% 8.6% 9% 6.2% 6.6% 6.9% 7.2% 7.6% 7.9% 10% 8.8% 9.2% 9.5% 9.9% 10.2% 10.6% 10% 8.1% 8.5% 8.8% 9.2% 9.6% 9.9% 11% 10.6% 11.0% 11.4% 11.8% 12.2% 12.6% 11% 10.0% 10.4% 10.8% 11.2% 11.6% 12.0%
EBITDA margin EBITDA 12% 12.4% 12.9% 13.3% 13.7% 14.1% 14.6% margin EBITDA 12% 11.8% 12.3% 12.7% 13.2% 13.6% 14.0%
Source: ABG Sundal Collier Source: ABG Sundal Collier
1 November 2019 ABG Sundal Collier 11
StrongPoint
DCF valuation Our discounted cash flow (DCF) valuation returns a share price range of NOK 12-18 for StrongPoint. We have assumed the following in our DCF calculation:
ABGSC estimates for 2019e-2021e Annual growth of 4% for 2022e-2026e EBITDA margin of 9.0% for 2022e-2026e Weighted average tax rate of 21% Depreciation, amortisation, capex and working capital grow at the same rate as sales after 2021e. Long-term terminal growth rate of 1-3%. A weighted average cost of capital (WACC) of 9.0-11.0%.
DCF valuation DCF model ABGSC estimates Extrapolated Terminal value NOKm 2019 2020 2021 2022 2023 2024 2025 2026 NOKm 2026 2027
Revenues 1,108 1,210 1,280 1,331 1,385 1,440 1,498 1,558 Revenues 1,558 1,589 Sales growth 9% 6% 4% 4% 4% 4% 4% Sales growth 4% 2%
EBITDA 92 109 119 120 125 130 135 140 EBITDA 140 143 EBITDA margin 8.3% 9.0% 9.3% 9.0% 9.0% 9.0% 9.0% 9.0% EBITDA margin 9.0% 9.0%
Net income 31 40 48 49 53 57 61 65 Net income 65 66 D&A incl. IFRS16 53 54 54 54 54 54 54 54 D&A incl. IFRS16 54 55 IFRS16 lease payments -22 -22 -22 -22 -22 -22 -22 -22 IFRS16 lease payments -22 -22 Ch. in working capital -17 -19 -15 -15 -16 -17 -17 -18 Ch. in working capital -18 -18 Capex -18 -18 -18 -18 -19 -20 -21 -22 Capex -22 -22 Free cash flow 29 35 48 47 50 52 55 58 Free cash flow 58 59
Discounted free cash flow 29 33 42 37 36 34 32 31 Terminal value 734
Valuation summary NOKm Assumptions Stage 1: '19e-'21e 104 Growth '22e-'26e 4% Stage 2: '22e-'26e 170 Terminal growth 2.0% Terminal value 395 EBITDA margin 9.0% Enterprise value 669 WACC 10.0% Net debt excl. IFRS16 46 Equity value 624 Number of shares 44 Terminal value 14
Source: ABG Sundal Collier
Share price given WACC and terminal growth Share price given terminal growth and margin Terminal sales growth Terminal sales growth 14 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 14 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 8% 17 18 19 20 22 24 7.5% 9 10 10 10 11 11 9% 15 15 16 17 18 19 8.0% 11 11 11 12 12 13 10% 13 14 14 15 15 16 8.5% 12 12 13 13 14 15 11% 12 12 12 13 14 14 9.0% 13 14 14 15 15 16
WACC 12% 11 11 11 12 12 12 9.5% 14 15 15 16 17 18
13% 10 10 10 10 11 11 margin EBITDA 10.0% 16 16 17 18 19 20
Source: ABG Sundal Collier Source: ABG Sundal Collier
1 November 2019 ABG Sundal Collier 12
StrongPoint
Dividend yield StrongPoint has paid a steady and increasing dividend for the past eight years. Following the strong years of 2015 and 2016, the company paid an extraordinary dividend of NOK 1/share in addition to its ordinary dividend of NOK 0.50/share for 2016. In five of the last eight years, the company has paid a dividend per share that was higher than its EPS. This is because the company has made relatively large depreciations of its intangible assets, which has resulted in a cash flow per share that is higher than EPS. Between 2015 and 2018, StrongPoint had an average pay- out ratio of adjusted EPS of 73%. In 2018, StrongPoint paid a dividend of NOK 0.55/share, corresponding to a pay-out ratio of 68% of adjusted EPS. For 2019e- 2021e, we have assumed a pay-out ratio of 67-70%, which would give a dividend yield of 6.0-8.8%. The average for peers in the same period is 2-3%.
Dividend pay-out ratio and dividend yield
Dividend yield Actual numbers ABGSC estimates
NOKm 2015 2016 2017 2018 2019e 2020e 2021e Revenues 1,146 1,120 951 1,068 1,108 1,210 1,280 EBITDA 90 112 52 67 92 109 119 EBITDA margin 7.9% 10.0% 5.5% 6.3% 8.3% 9.0% 9.3%
Depreciation of tangible assets -15 -16 -18 -19 -38 -39 -39 Depreciation of intangible assets -17 -17 -14 -19 -15 -15 -15 EBIT 59 78 20 30 39 54 65 Adj. EBIT 76 96 34 49 54 70 80 Adj. EBIT margin 6.6% 8.6% 3.6% 4.6% 4.9% 5.8% 6.3%
Net income 36 74 10 13 31 40 48
Reported EPS 0.82 1.68 0.23 0.30 0.71 0.90 1.09 Adjusted EPS 1.19 1.70 0.51 0.80 0.98 1.17 1.36
Dividend per share 0.45 1.50 0.50 0.55 0.65 0.80 0.95 Payout ratio of reported EPS 55% 89% 221% 181% 92% 89% 87% Payout ratio of adj. EPS 38% 88% 99% 68% 67% 68% 70%
Dividend yield 6.0% 7.4% 8.8%
Source: ABG Sundal Collier, StrongPoint
Below, we show the dividend yield in 2019e and 2020e given different assumptions for the EBITDA margin and pay-out ratio (as a share of adjusted EPS).
2019e dividend yield 2020e dividend yield
Payout ratio of adj. EPS PayoutPayout ratio ratio of adj.of adj. EPS EPS Payout ratio of adj. EPS 0 60% 65% 70% 75% 80% 85% 0 60% 65% 70% 75% 80% 85% 7% 4.0% 4.3% 4.6% 4.9% 5.3% 5.6% 7% 4.2% 4.5% 4.8% 5.2% 5.5% 5.9% 8% 5.1% 5.5% 5.9% 6.3% 6.7% 7.2% 8% 5.4% 5.8% 6.3% 6.7% 7.1% 7.6% 9% 6.2% 6.7% 7.2% 7.7% 8.2% 8.7% 9% 6.6% 7.1% 7.7% 8.2% 8.7% 9.3% 10% 7.3% 7.9% 8.5% 9.1% 9.7% 10.3% 10% 7.8% 8.4% 9.1% 9.7% 10.4% 11.0% 11% 8.4% 9.0% 9.7% 10.4% 11.1% 11.8% 11% 9.0% 9.7% 10.5% 11.2% 12.0% 12.7%
EBITDA margin EBITDA 12% 9.5% 10.2% 11.0% 11.8% 12.6% 13.4% margin EBITDA 12% 10.2% 11.0% 11.9% 12.7% 13.6% 14.4%
Source: ABG Sundal Collier Source: ABG Sundal Collier
1 November 2019 ABG Sundal Collier 13
StrongPoint
StrongPoint in brief
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
1 November 2019 ABG Sundal Collier 14
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. *StrongPoint also sells products through partners in the US, South Africa and Malaysia.
StrongPoint’s home markets are Norway, Sweden and the Baltics. In addition, it has its own sales organisations in Spain and Germany, which are key focus areas for growth. In addition, it distributes its products in several other European countries through partners.
Cash Security and Labels – a nice cash cow StrongPoint produces and sells Cash-in-Transit (CIT) cases based on Intelligent Banknote Neutralisation System (IBNS) technology for secure cash transportation. Strongpoint is among the global leaders in IBNS technology. If a case is tampered with, the cash is covered a liquid, usually an indelible ink. The typical customers of StrongPoint’s CIT cases are leading cash handling and logistics companies such as Loomis, G4S and Prosegur, or banks.
High quality security cases for Cash-in-Transit Adhesive labels for products and transportation
Source: StrongPoint Source: StrongPoint
The Label segment is one of the leading designers and producers of adhesive labels in Scandinavia. In 2018, Labels had revenues of NOK 166m and an EBITDA of NOK 23m, corresponding to an EBITDA margin of 14%. In addition to Cash
1 November 2019 ABG Sundal Collier 15
StrongPoint
Security, the company views Labels as non-core and it could be divested for the right price. Typical customers of the Label business are brand owners in the food and beverage, cosmetics, chemicals or manufacturing industries.
Solid track record; EBITDA growth set to accelerate From 2003 to 2018, sales grew at a CAGR of 8%, from NOK 337m to NOK 1,068m. The strong growth has been organic and through several acquisitions, including Antonsongruppen (2004), CashGuard (2008) and Vensafe (2014). EBITDA has not seen the same growth, as it has hovered around NOK 60-80m since 2007, excluding 2015 and 2016. In those years, CashGuard revenues were boosted by the introduction of new banknotes and coins in the Nordics. For 2019, we expect solid growth in EBITDA, i.e. up NOK 25m y-o-y, to NOK 92m driven by 1) impressive H1’19 numbers with underlying EBITDA up NOK 30m y-o-y1, 2) an IFRS16 effect of NOK 23m, 3) cost cuts and 4) supportive markets. This is somewhat offset by tough comparisons in the Cash Security segment in H2’19.
StrongPoint, historical and estimated key figures Key figures NOKm Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19e 2017 2018 2019e 2020e 2021e Revenue 250 276 233 308 288 287 237 295 951 1,068 1,108 1,210 1,280 Underlying revenue growth* 0% 1% 14% 19% 15% 19% 2% -4% -15% 8% 7% 9% 6%
EBITDA 11 18 15 22 28 22 18 25 52 67 92 109 119 Underlying EBITDA* 11 -3 15 22 22 16 12 19 52 46 70 86 96 Underlying EBITDA margin 4.6% -1.1% 6.5% 7.3% 7.6% 5.7% 5.1% 6.5% 5.5% 4.3% 6.3% 7.1% 7.5% Underlying EBITDA growth (NOKm) 1 -10 1 2 11 19 -3 -3 -59 -6 23 16 11
Reported EPS 0.12 0.16 0.07 -0.05 0.30 0.16 0.06 0.18 0.23 0.30 0.71 0.90 1.09 Adjusted EPS** 0.24 0.27 0.17 0.05 0.39 0.25 0.13 0.25 0.51 0.80 0.98 1.17 1.36
Net debt 62 71 72 55 120 107 112 99 51 55 99 72 37
Source: ABG Sundal Collier, StrongPoint. *Excluding NOK 23m in annual IFRS16 effects and NOK 36m in sales and NOK 21m in EBITDA from the sale of 725 CashGuard’s to Alimerka in Q2’18. **Excluding depreciation of intangible assets.
Strong new management team in place In August 2018, after 15 years under the leadership of Jørgen Waaler, Jacob Tveraabak took over the reins as CEO. Prior to joining StrongPoint, he served as CEO of Miklagruppen, worked 12 years for McKinsey & Company and was the Business Development Director at REMA 1000. In February 2019, StrongPoint strengthened its management team further with Hilde Horn Gilen as new CFO, who came from the position as CFO of Ahlsell Norway. In addition, the team consists of Peer Haagensen, Trond Kongrød, Julius Stulpinas, Göran Thörn, Erik Vaag, Roine Gabrielsen, Leif Persson and Lars-Åke Köpper, all of whom have long relevant experience. The chairman, Per-Morthen Johannessen, has held several CEO positions and been COO at Tomra. In our view, the team combines people with deep company and industry knowledge with fresh ideas.
1 Excluding IFRS16 effect of NOK 11.4m in H1’19 and one-off sale to Alimerka of NOK 21.3m in Q2’18. 1 November 2019 ABG Sundal Collier 16
StrongPoint
StrongPoint in the sweet spot The retail environment is changing. E-commerce is taking an increasingly larger share of retail revenues, making it harder for physical retailers to achieve sales growth, which puts pressure on profitability. In this environment, retailers are forced to adopt new technology to improve costs and stay competitive. In addition, physical retailers are launching their own e-commerce offerings. StrongPoint develops and sells such technological solutions via its Retail Technology segment.
For StrongPoint, e-commerce is a double opportunity For StrongPoint, the strong growth in e-commerce creates a double opportunity. First, the pressure on retailers’ profitability is forcing them to adopt technological solutions to increase their profitability and improve the value proposition for their customers. Secondly, retailers are adopting omni-channel as their new distribution strategy and will need solutions that enable them to provide customers with a high- quality, online offering at a low cost. We will analyse these trends below.
E-commerce creates a double opportunity for StrongPoint
Customer need Opportunity for StrongPoint StrongPoint products
Electronic shelf labels, Increased competition from e- StrongPoint provides Self-checkout solutions, commerce puts pressure on technology solutions that 1 CashGuard, Vensafe, retailers’ profitability increase retailers’ profitability ShopFlow Logistics E-commerce Traditional brick & mortar StrongPoint provides e- E-com Logistics Suite retailers wish to establish an commerce solutions for 2 Click & Collect online presence retailers
\ Source: ABG Sundal Collier, StrongPoint
Migration of traffic and sales from store to online… E-commerce has grown rapidly in recent years and now makes up a significant share of global retail trade. In the US, e-commerce now accounts for ~10% of retail sales and it is still growing fast with y-o-y growth of 14% in 2018. E-commerce has also been growing strongly in the Nordics. According to Statistics Norway (SSB), online sales in Norway amounted to NOK 23.3bn in 2018, or 7.2% of total retail sales (excl. groceries). However, this number only includes sales from Norwegian online stores. It does not include imports or online sales from traditional brick & mortar stores (Elkjøp, Power, XXL, etc.), which we estimate could be as much as ~NOK 12bn. On top of this comes service and travel, some NOK 20bn and NOK 50bn respectively, making total e-commerce sales over NOK 100bn in Norway.
US e-commerce sales and share of total retail Norway: E-commerce in % of total retail sales* USDbn % of total retail sales % of total retail sales 700 12% 8% 7.2% 6.9% 600 10% 7% 9% 10% 6.2% 8% 500 6% 5.5% 7% 8% 6% 4.8% 400 6% 5% 5% 4.3% 5% 6% 4.0% 4% 3.7% 3.8% 300 4% 4% 3% 4% 3.3% 3.3% 3% 4% 200 2% 3% 2% 2% 1% 1% 2% 100 1% 2%
0 0% 1%
2000 2001 2002 2004 2005 2006 2007 2008 2009 2010 2011 2014 2015 2016 2017 2018 2012 2013 2003 0% E-commerce sales (lhs) E-com share (rhs) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: ABG Sundal Collier, US Census Bureau Source: ABG Sundal Collier, SSB. *Excluding groceries.
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In the past five years, online sales in Norway have grown by 14% y-o-y on average, significantly outgrowing physical retail stores at 2%. The growth is driven by pure e- commerce retailers, but also traditional brick & mortar retailers venturing online as part of an omni-channel offering. Consequently, store traffic has fallen, hurting retailers’ like-for-like (LFL) sales growth. Below we have shown LFL sales growth for some selected retailers, including shopping centres in Norway.
Norway: E-com vs. physical retail (sales growth) Norway: LFL sales growth, selected retailers
Growth, y-o-y 8% y-o-y 20% 18% 18% 17% 6% 16% 16% 16% 14% 4% 14% 12% 2% 10% 10% 8% 8% 0% 8% 2013 2014 2015 2016 2017 2018 2019e 6% 5% -2% 4% 4% 3% 3% 3% 2% 2% 2% 2% -4% 2% 1% 0% -6% 2010 2011 2012 2013 2014 2015 2016 2017 2018 E-com retail sales growth Physical retail sales growth Kid XXL* Europris Shopping centre Average
Source: ABG Sundal Collier, SSB. All figures are excluding groceries. Source: ABG Sundal Collier, Kvarud, company data.
As can be seen in the graph, LFL sales growth has gone from ~4% in 2013 to ~1% in 2019e (average), highlighting migration of traffic and sales from store to online. For the shopping centre index, groceries are the most important retail sector, accounting for ~30% of sales, highlighting that food retailers are also experiencing a more challenging trading environment. Data from the US also shows that store productivity, measured by sales per square foot, has decreased significantly in the past few years for several large US retailers across categories. As can be seen below, from 2014 to 2017, sales per square foot decreased by 5-10% for several retailers, and by even up to 20-25% for some.
US: Reduced store productivity Sales pr. Square Foot (USD) Change Retail company Category 2014 2017 2014-2017 (%) Urban Outfitters, Inc. Apparel stores $473 $377 -20% Gap Inc. Apparel stores $360 $337 -6% Ascena Retail Group Apparel stores $204 $193 -5% Abercrombie & Fitch Co. Apparel stores $379 $365 -4% L Brands Apparel stores $655 $639 -2% Sears Holdings Department stores $120 $91 -24% Macy's Department stores $163 $147 -10% Kohl's Department stores $168 $156 -7% Dillard's Department stores $123 $117 -5% JC Penney Department stores $102 $102 0% Wal-Mart Stores, Inc. Discount & Variety stores $421 $400 -5% Target Discount & Variety stores $294 $283 -4% Best Buy Electronics stores $770 $759 -1% Bed Bath & Beyond Furniture & Home Furnishing stores $254 $239 -6% Williams-Sonoma Furniture & Home Furnishing stores $395 $392 -1% Sportsman's Warehouse Sporting Goods stores $264 $236 -11% Dick's Sporting Goods Sporting Goods stores $188 $184 -2%
Source: ABG Sundal Collier, company data
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…putting pressure on profitability for traditional retailers Retailers have a relatively fixed costs base short term, as personnel costs normally account for ~50% of the cost base while rent is ~25%. This means close to 75% of a retailer’s cost base is relatively fixed short term and subject to yearly cost inflation. With sales growth under pressure, it is clear that retailers need to concentrate more on costs to defend margins. As can be seen in the charts below, in the last few years slower sales growth (together with gross margin pressure) has resulted in EBIT margin contraction for retailers. Although e-commerce still makes up a relatively small share of the total grocery trade, we see the same margin pressure among Nordic grocery retailers, a core market for StrongPoint.
Nordic: EBIT margins of various retailers Nordics: EBIT margins, grocery retailers
EBIT margin EBIT margin 16% 25% 5.0% 14% 20% 12% 4.5% 10% 15% 8% 6% 4.0% 10% 4% 2% 5% 3.5% 0% -2% 0% 2004 2006 2008 2010 2012 2014 2016 2018 3.0% 2012 2013 2014 2015 2016 2017 2018 BYGGmax Kappahl XXL Clas Ohlson H&M Europris Axfood ICA group Rema 1000 Norgesgruppen
Source: ABG Sundal Collier, FactSet, company data Source: ABG Sundal Collier, FactSet, proff.no, company data
Declining margins requires investment in new technology Historically, the retail sector has lagged other industries when it comes to adopting new technologies, but now customer expectations and increased competition are forcing retailers to invest more in new technologies and digitalization. According to a survey conducted by VoucherCodes and WBR Insights, 55% of retail executives in the UK and France have plans to invest in “technology in-store”, as seen below. This was the most important investment area for the retailers after investing in mobile technologies (apps, coupons, mobile payments, etc.). Another key demand driver for retail technology is consumer demand for an increasingly digitalised, personalised and convenient shopping experience. According to Riverbed’s Retail Digital Trends Survey (as seen below to the left), automated checkouts are the number one in-store technology that consumers want, while smart shelves were the second most wanted technology (both provided by StrongPoint).
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Retailers’ plans for technology investments What consumers want from in-store technology
Share of respondents 90% Automated checkout 36% 80% 75% 70% Smart shelves with sensors to 55% 29% 60% maintain inventory 50% 47% 40% 29% VR/augmented reality 23% 30% 20% 10% 7% 0% Pop-up store openings 22% 0% Mobile In-store AR, AI, etc. Revamping Nothing Don't see technology online planned the value 0% 10% 20% 30% 40% 50% presence Share of respondents
Source: ABG Sundal Collier, VoucherCodes, WBR Insights, Source: ABG Sundal Collier, Riverbed Retail Digital Trends Survey eMarketer.com. Survey conducted in UK and France in Q2’18. 2019. 3,000 consumers surveyed in the US, Germany and Australia.
StrongPoint already sells several products that increase automation in stores and reduce labour costs for retailers, including self-checkouts and electronic shelf labels (ESL). Actually, according to Mckinsey & Company, ESLs and self-checkout terminals are among the automation technologies available today that have the biggest effect on man-hours in retail2.
Given our discussion, retailers are expected to increase investments in in-store technology to improve their cost position/efficiency. In particular, ReportLinker expects the global ESL market to grow at a CAGR of 24% up to 2023, driven by a general trend for retail automation and ESLs being a more cost-efficient alternative to paper labels. In our view, growth will likely be much lower in the Nordics, as many grocery retailers and some other retailers have already adopted ESLs. However, we expect the growth to be much higher in Spain and the Baltics, where penetration is currently low. Also, Global Market Insights expects self-checkout systems to grow at a CAGR of 8% to 2024, reaching a market value of over USD 4bn, almost double from 2016.
Global: Market for electronic shelf labels Global: Self-checkout system market USDm USDbn 1,800 CAGR 24% 4.5 1,600 4.0 1,425 1,400 3.5 1,200 3.0 1,000 2.5 800 2.0 600 1.5 392 400 1.0 200 0.5 0 0.0 2017 2023 2016 2017 2018 2019 2020 2021 2022 2023 2024
Source: ABG Sundal Collier, ReportLinker Source: ABG Sundal Collier, Global Market Insights
StrongPoint has leveraged the relationships it has established with large grocery chains in the Baltics through sales of POS systems to take a high market share in self-checkout solutions (SCOs) in the region. These are either sold in partnership with NCR, where StrongPoint provides software to NCR’s hardware, or StrongPoint’s own solutions, where it delivers both hardware and software. Our study of the
2 McKinsey & Company: Automation in retail, May 2019
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market reveals that Maxim, Coop and Rimi (StrongPoint customers) on average have rolled out SCOs in only ~20% of their stores. A typical Baltic supermarket has 15-25 SCOs per store. This suggests that there is still large untapped potential in the region. StrongPoint delivered a large order of 82 own SCOs in 2018 and another 123 in H1’19. It has sold many more NCR terminals with StrongPoint software.
Baltics: Share of stores with self-checkout Baltics: StrongPoint sales of own SCOs
Number of stores Number of Self-checkout terminals 600 250
485 500 200
400 333 150 123 300 268 192 200 100 205
100 60 50 3 82 0 Maxima Coop Rimi 0 Total Stores with self-checkout 2018 H1'19 Total \ Source: ABG Sundal Collier, Rimi, Coop, Maxima Group Source: ABG Sundal Collier, StrongPoint
In Q1’19, StrongPoint announced that it had entered into a partnership with Harting Systems for the development and distribution of new self-checkout solutions to the German market. Harting Systems is a retail technology producer with a strong presence in the German market.
Traditional retailers moving into e-commerce Many traditional physical retailers are now launching their own e-commerce solutions. By developing their e-commerce offerings, retailers can take part in the growth of e-commerce, but they can also drive more foot traffic to their physical stores. According to a survey by Riverbed, 47% of consumers say that they have visited a store for the first time because of a good online shopping experience. As StrongPoint’s main market is groceries, we will focus our analysis on this. Online shopping is still in its early days in groceries, but made up ~2% of the US market in 2016. In Norway, the online grocery market has been pioneered by a start-up called Kolonial.no. It has grown significantly since its launch in 2014 and has captured 0.5% of the total grocery market (2018). Although the online grocery turnover is still limited in Norway, the incumbent grocery chains will need to speed up their investments in e-com or risk losing significant market share to players like Kolonial.no.
Kolonial.no sales and market share (Norway) US: Online share of total sales by category NOKm Market share Share of total sales (%) 35 33 1,000 919 0.8% 32 900 30 28 28 801 0.7% 24 800 25 0.6% 21 700 19 19 18 0.5% 0.5% 20 17 600 0.5% 15 15 13 500 424 0.4% 12 9 10 400 0.3% 10 6 6 5 300 0.2% 3 0.2% 5 2 200 0.6 75 0.1% 0 100 14 2011 2016 2021 0 0.0% Food & Alcohol Drugs, Health & Beauty Furniture 2014 2015 2016 2017 2018 Footwear & Apparel Toys & sports Entertain- ment Sales Market share Electro- nics
Source: ABG Sundal Collier, proff.no, SSB Source: ABG Sundal Collier, Statista, Kantar Retail
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An up-and-coming solution that retailers have begun to adopt is Click & Collect lockers, whereby consumers can pick up goods that they purchase online. According to OC&C Strategy Consultants, the Click & Collect market for retail is projected to grow strongly until 2025. It has also started to gain popularity in grocery retail, with several large grocery chains across Europe now piloting the solution. In the UK, changing buying patterns are expected to result in a doubling of the home delivery and Click & Collect markets by 2025. In 2015, home delivery made up the majority of the sales at GBP 36bn, while Click & Collect only accounted for GBP 6bn in sales. The Click & Collect market, however, is expected to grow more rapidly in coming years and amount to GBP 23bn, or ~10% of total grocery retail sales in 20253. This would correspond to a CAGR of 15% over the 10-year period. Other industry experts support this by arguing that one of the main future changes in retail grocery stores will be an expansion of pickup areas, whereby customers can collect online pre-ordered items4.
UK online grocery retail by type UK grocery retail sales by type
GBPbn 80 100% 1% 69 3% 10% 70 9% 19% 80% 60 30%
50 60% 40 36 90% 40% 78% 30 23 60% 20 15 20% 10 6 1 0 0% Home delivery Click & collect 2005 2015 2025 2005 2015 2025 In store Home delivery Click & collect
Source: ABG Sundal Collier, OC&C Strategy Consultants Source: ABG Sundal Collier, OC&C Strategy Consultants
StrongPoint has its own Click & Collect lockers with separate ambient, cooling and freezing compartments well suited for online grocery sales. Since the launch of the product in the beginning of 2017, StrongPoint has installed over 100 lockers in Sweden, Norway, Russia, Lithuania, Estonia, Italy and Spain.
3 OC&C Strategy Consultants 4 Bain & Company, Grocery Retailing, reimagined, 2018
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Cash is still king
Cash is still the most used form of payment in most regions of the world. In fact, 79% of all transactions in Europe are done in cash. For the average retailer, handling cash can be time-consuming and an additional risk to the business. CashGuard is a cash management system that improves money security by offering a complete solution for efficient, secure and closed cash handling. StrongPoint delivers CashGuard through its Retail Technology segment and is a market leader with over 30,000 machines installed to date. With a cash share of 87%, Spain is a key growth market for CashGuard.
Cash: Still the preferred payment method For the average retailer, handling cash is time-consuming and an additional risk to the business. Counting, storing/handling, and depositing cash requires time, manpower and security measures. Theft, robbery and fraud are just some of the risks retailers face when accepting cash payments. A reliable and affordable cash- handling solution can reduce these risks and improve efficiency for retailers. For Norway and Sweden, the share of cash is low, as only ~12% of all transactions are done in cash. This is in sharp contrast to many other countries in Europe, where the figure is over 80%. Actually, cash is still the most used form of payment in most regions of the world, and cash in circulation (CIC) is still growing.5
Cash share of transactions by country (2016) Interchange fee per country
% of transaction value Greece 88% 0.3% Spain 87% Italy 86% 0.20% 0.2% Portugal 81% Germany 80% Euro Area 79% 0.2% France 68% Finland 54% 0.1% UK 44% Sweden 13% 0.1% 0.03% Norway 11% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 0.0% EU Norway Cash share of transactions
Source: ABG Sundal Collier, European Central Bank, Norges Bank. Source: ABG Sundal Collier, Norges Bank, European Commission. In 2018 for Norway and Sweden, 2017 for Denmark. Markets where Norway, the fee is NOK 0.1, which is equal to 0.03% of the average StrongPoint sells CashGuard are marked in brown. card transaction value of NOK 350.
The Nordic countries, such as Norway and Sweden, clearly distinguish themselves from the rest of Europe, with cash shares of 11% and 13% respectively. There are two reasons for this: 1) a technology savvy population that have been early to adopt new technological solutions and 2) the Nordic countries have reduced card transaction costs significantly through a shared payments infrastructure. This has resulted in low fees for card transactions. In Norway, this fee is only NOK 0.1 per transaction, or 0.03% of the average transaction value of NOK 350. The interchange fees6 on the European continent have been much higher than in the Nordics due to structurally higher costs for payment processing. Following a recent EU battle with Visa and Mastercard to lower interchange fees, there will be a new ceiling on these fees of 0.20% in the EU. This is lower than it is today, but still well above the level in the Nordics.
5 According to the G4S cash report from 2018 6 The fee paid per card transaction
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Cash to be the preferred payment method Some habits die hard, including the Spaniards’ preference for paying with cash (87%). According to the chief cashier at the Spanish central bank, the average Spanish consumer prefers to pay with cash due to the convenience and control they have over their spending7. Although cash withdrawals have declined in several other countries, ATM withdrawals in Spain have been flat for the past decade. In addition, debit and credit cards are usually not accepted for transactions worth less than EUR 6 at Spanish pharmacies. Germany is another European country where cash is still the preferred form of payment (80%) and likely will continue to be so in the foreseeable future. According to the ECB, the average German wallet contains EUR 103, which is the highest figure in Europe and three times the figure in France. This is another example showing that cash is still the preferred payment method in many countries.
Spain: ATM withdrawals Europe: Value of money in an average wallet EURbn Germany 103 140 Austria 89 120 Greece 80 100 Italy 69 Ireland 69 80 Belgium 58 60 Finland 56 Spain 50 40 Netherlands 44 20 France 32 0 Portugal 29 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 0 30 60 90 120 Euros
ATM Withdrawals Source: ABG Sundal Collier, The PYMNTS.com Global Cash Index – Source: ABG Sundal Collier, Bloomberg, European Central Bank, Spain Edition (2018) Deutsche Bundesbank, De Nederlandsche Bank
It is also interesting to see that cash withdrawals in Sweden have stayed relatively stable in recent years after declining from 2013/2014 levels. Furthermore, despite cash making up only 13% of transactions in Sweden, cash is still in broad use across the population. In 2018, 61% of Swedes reported that they had used cash as a means of payment in the last month.
Sweden: Number of ATMs and cash withdrawals Sweden: Payment forms used in the past month Number of ATMs SEKbn Share of respondents
4,000 300 100% 93% 93% 93% 90% 87% 3,500 3,237 3,231 3,285 79% 250 80% 3,000 2,850 219 213 2,655 70% 200 61% 62% 2,500 60% 52% 2,000 153 150 50% 130 40% 1,500 110 100 30% 1,000 20% 50 10% 500 10% 0 0 0% 2013 2014 2015 2016 2017 Cash Debit card Mobile payment 2014 2016 2018 Number of ATMs Transaction value
Source: ABG Sundal Collier, Sveriges Riksbank Source: ABG Sundal Collier, Sveriges Riksbank. Survey of 2,000 Swedish inhabitants.
7 PYMNTS.com - For Payments In Spain, Cash Still Reigns 1 November 2019 ABG Sundal Collier 24
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Untapped market potential in Spain Besides growing within its core market (Norway, Sweden and the Baltics), one of StrongPoint’s key focus areas is to grow its presence with retailers in Spain and Germany. In our view, these retail markets are particularly interesting as 1) they are significantly larger than the Nordic markets, 2) they are much more fragmented than the retail market in the Nordics, 3) they still have a high cash share of transactions (87% and 80%, respectively), 4) they are only in the early stages of adopting advanced retail technologies and 5) they are countries where StrongPoint already has a presence.
As seen below, Spain is the 5th largest grocery market in Europe, with EUR 111bn in total sales in 2017. This compares to EUR 24.5bn in Norway and EUR 29.6bn in Sweden. There were a total of 449 retail chains in Spain in 2018, with Fashion & Clothing as the largest category, with 115 retail chains. Food was the second- largest category, with 60 different retail chains and with the top three chains in Spain only control 39% of the market (vs Norway where three players control ~98%). In total, there are more than 22,000 supermarkets in Spain.
European grocery turnover by country Spain: Number of retail chains by sector (2018)
Germany 239 Fashion & Clothing 115 France 225 Food 60 UK 216 Footwear & Leather 54 Italy 175 Personal Care 45 Spain 111 Consumer Electronics 41 Poland 63 Furniture & Decoration 36 Netherlands 49 Jewelry & Watches 31 Belgium 41 Sport & Leisure 30 Switzerland 40 Home Ware 28 Romania 33 Baby Ware 26 Sweden 30 Toys & Games 23 Ukraine 27 DIY & Gardening 23 Austria 25 Books & Magazines 18 Norway 25 Car Parts & Accessories 16 Czech R. 23 Petrol 14 Denmark 20 Optical 12 Portugal 19 Telecom 8 Finland 18 Pet Care 4 0 50 100 150 200 250 0 30 60 90 120
EURbn Number of retail chains
Source: ABG Sundal Collier, IGD Datacentre, NHH Source: ABG Sundal Collier, Statista
In addition to the ~22,000 supermarkets, StrongPoint’s target market in Spain also includes ~11,000 bakeries8, ~22,000 pharmacies9, ~11,000 gas stations10 and ~280,00011 bars and restaurants.
As discussed, Spain has a very high usage of cash, with 87% of all transactions made in cash. This should create an opportunity for StrongPoint’s CashGuard products. As an example, the Spanish chain Alimerka decided to buy 725 CashGuard machines that they had been leasing from StrongPoint in Q2’18. This deal alone accounted for 32% of StrongPoint’s 2018 EBITDA. According to StrongPoint, there were approximately 5,000 cash management systems installed in Spain at the end of ’18. Below we have shown a simplified calculation of the market potential for Strongpoint’s CashGuard in the Spanish grocery sector. Assuming a
8 Spain's National Statistics Institute (INE) 9 Canifarma, Statista. 10 Expatica.com, elEconomista.es 11 Thelocal.es, thinkSPAIN.es 1 November 2019 ABG Sundal Collier 25
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70% penetration rate, a 40% market share for StrongPoint and machines installed over 10 years, we estimate that it could lift StrongPoint’s revenues by 20% annually. On top of this comes the potential for sales to bakeries, pharmacies, gas stations, bars and restaurants.
Estimated potential for CashGuards in Spain Estimated number of CashGuards per market Spain potential Number of CashGuards (1,000) Number of supermarkets 22,000 CashGuards per supermarket* 4.3 30 ~5k Penetration rate 75% 25 Total maket potential 70,950 ~2k Installed CashGuards** 5,000 20 ~5k Remaining to install 65,950 15 ~30k Market share 40% ~8k Price (NOK) 60,000 10 Product sales potential 1,583 5 Sales per year (over 10 years) 158 ~10k Service revenue (30%) 55 0 2018 revenue 1,073 Norway Sweden Spain France Rest of Europe World total Increase vs. 2018 20%
Source: ABG Sundal Collier, Statista, StrongPoint. *Alimerka has 4.3 Source: ABG Sundal Collier, StrongPoint. Norway, Sweden and rest of CashGuards per store. **Installed as of year-end 2018. Europe are ABGSC estimates.
StrongPoint is moving towards more sales of CashGuard on a rental solution, called Easy Access. This reduces the initial capex for smaller retailers and could open up a larger share of the market for StrongPoint. As far as we know, StrongPoint is currently the only player that provides cash management machines through a rental solution. This option is also open for sales through StrongPoint’s partners (RoadRunners). Easy access has started to gain good momentum in Spain, and sales would have been NOK 5.5m higher in Q2 if the systems were sold instead.
Recent growth initiatives In July 2019, StrongPoint announced that it had entered Portugal for the first time through a partnership agreement with Exclusivas Iglesias. According to the company, Portugal is a natural stepping stone from Spain. The agreement gives Exclusivas Iglesias the exclusive right to sell StrongPoint’s cash management solutions to small retail and hospitality customers in Portugal and the non-exclusive right to sell all other of StrongPoint’s solutions in Portugal. Exclusivas Iglesias has a wide distributor network, with 60 employees, of which 15 are in Portugal and seven large partners in Spain. It has committed itself to sell at least 100 Cash Management units in Portugal per year. The aim is that the partnership with Iglesias will also open the Portuguese market to StrongPoint’s other solutions within self- checkout, instore productivity and e-commerce. It is StrongPoint’s strategy to partner up with distributors that already have a solid foothold in the markets they enter and it is therefore likely that, in our view, it will enter into several partnerships in Portugal.
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Retail Technology segment – positioned for strong growth The Retail Technology segment supplies a variety of technology solutions to retailers that improve efficiency and enhance the customer experience. Several products, including electronic shelf labels, Click & Collect lockers and self- checkout counters, are expected to show strong growth in the coming years. Recurring service and licence revenues account for one-third of the segment’s sales, while product sales account for the remaining two-thirds.
StrongPoint’s largest and most important segment is the Retail Technology segment, accounting for ~70% of EBITDA. It supplies a diverse range of products to retailers that help them improve profitability, lower the risk of theft, enhance the customer experience or venture into e-commerce. Today, cash management and electronic shelf labels (ESLs) are the two products with the biggest impact on the company’s revenues. An overview of the product portfolio is illustrated below.
Retail Technology product overview
Click & Collect E-commerce Logistics Suite Self-checkout Vensafe
CashGuard ShopFlow Logistics Electronic shelf labels Real-Time Task Manager
Source: ABG Sundal Collier, StrongPoint
The company has three focus areas for growth, which are shown below.
StrongPoint has three strategic focus areas
Strategic focus areas
1 2 3 Maintain and grow Significantly grow relevance with retailers Grow e-commerce into a presence with retailers in current key markets of substantial portion of Spain to mirror home Norway, Sweden and the Strongpoint’s business market penetration Baltics
Source: ABG Sundal Collier, StrongPoint
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The first focus area is to maintain and increase its relevance to retailers in Norway, Sweden and the Baltics. StrongPoint has a strong position in the Nordics and close business relationships with many grocery chains. This connection should help the company to sell additional products to existing customers. StrongPoint has good momentum in terms of self-checkout terminals in the Baltics while it has also slowly started to roll out ESLs in the region. Secondly, the company aims to significantly increase its presence in Spain. In particular, we see solid potential for cash management solutions in Spain because of the high share of cash transactions there. Thirdly, StrongPoint aims to grow e-commerce into a substantial portion of its business. Its current portfolio of e-commerce solutions focus on grocery retailers that sell goods online for store pickup, but it is aiming to expand its portfolio to include other areas.
One-third of revenue is recurring, the rest is lumpy Sales are split among product sales, recurring service and licence revenues. Product sales are lumpier by nature and can swing significantly from quarter to quarter depending on the timing of large orders. For example, Q2’18 sales and EBITDA received a boost when the Spanish chain Alimerka bought 725 cash management machines, which it had previously rented (this increased sales and EBITDA by NOK 36m and NOK 21m, respectively, in Q2’18). Large orders such as these tend to recur on a frequent basis and can often make up a significant share of annual EBITDA. Service and licenses represent recurring revenues such as service and repair fees, software licenses and leasing. In 2018, 64% of segment revenues were product sales, while 36%, or NOK 280m, were recurring service and license revenues. In addition, product sales include some replacement sales, which can be considered as recurring revenue on a quarterly basis.
Retail Technology: Sales and EBITDA Retail Technology sales split by region (2018) NOKm Share of revenues 250 50% 222 214 213 14% 189 196 45% 200 183 179 177 161 32% 145 40% 150 38% Sweden 35% 35% Norway 33% 24% 100 31% EMEA/partners 30% Baltics 50 29 23 25 25% 14 9 9 14 17 11 11 0 20% Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 30% Retail Technology EBITDA Recurring revenue share
Source: ABG Sundal Collier, Strongpoint Source: ABG Sundal Collier, Strongpoint
Strong market growth for ESLs StrongPoint distributes ESLs manufactured by the Swedish company Pricer12. This is one of StrongPoint’s most important products. ESLs are digital shelf-edge labels based on infrared (IR) technology that replace traditional paper shelf labels. By using IR technology, the ESLs offer a quick response time and low power consumption compared to competitors. The ESL enables automatic, real-time price updates, which saves retailers significant time and costs related to manual price changes. ESLs have a high cost of installation and can contribute significantly to product sales. Installation in a single large supermarket could mean NOK 3-5m in product sales. There is limited revenue from in-store service, but StrongPoint has some recurring revenue from online support agreements.
12 Pricer is a global leader in ESLs with over 165m labels installed in +16,000 stores in over 50 countries 1 November 2019 ABG Sundal Collier 28
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Electronic shelf label (ESL) Key functionality of Pricer’s ESLs
Flash Alert Shelf interactivity Geofencing
Source: Pricer Source: Pricer
The ESLs can be connected to wireless devices, which enables a variety of add-on features. These include flashing when the product is out of stock, “geofencing” and sending detailed product information to the shopper’s phone. Another feature is “Pick & Collect”, which can be used in combination with StrongPoint’s Click & Collect lockers. Pick & Collect plans the optimal route for the picking process using the geofencing ability and highlights the products to be picked with the Flash function. Please see the appendix for more information about these features. Unfortunately, StrongPoint does not disclose revenues from ESLs, but Pricer obviously does. As seen below Pricer has achieved high sales growth in the past 10 years. Pricer’s sales in the Nordics, particularly in Norway, should give a good indication of StrongPoint’s ESL sales, since StrongPoint is the main reseller for Pricer in the Nordics and exclusive distributor in Norway. The years 2012 and 2015 were very strong for sales of ESLs in Norway due to the roll-outs of ESLs to Rema 1000 in 2012 and Meny and Coop in 2015. From 2016 to 2018, sales in Norway grew by a CAGR of 20%. The ESL batteries can last up to 10 years, but the tags are less durable and typically need to be replaced every 5-7 years at a cost of ~USD 5 per ESL. This should mean replacement sales every 5-7 years. Pricer: Group sales (historical and estimates) Pricer’s sales in Norway and Sweden SEKm SEKm 1,400 250 218 1,200 200 1,000
800 150
600 99 100 87 400 69 60 50 200 50 37 30 31 34 18 19 16 14 20 0 10
0
2007 2008 2009 2011 2012 2014 2015 2016 2018 2010 2013 2017
2006 2011 2012 2013 2014 2015 2016 2017 2018
2020e 2021e 2019e Norway Sweden sss Source: ABG Sundal Collier, Pricer Source: ABG Sundal Collier, Pricer
In Sweden, sales have been more stable due to a higher degree of franchise stores, which makes chain-wide roll-outs less likely to happen. Sales growth has also been solid in Sweden, with a CAGR of 9% since 2008. However, sales in Sweden have only been SEK 182m since 2011, compared to SEK 631m in Norway. Pricer has been able to achieve a higher market share in Norway than in Sweden, which is likely somewhat due to StrongPoint’s good relationship with the major Norwegian retailers. Pricer is one of the two market leaders in ESLs globally, but the market is
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highly competitive. Pricer distinguishes itself from its competitors due to the IR technology, which gives a longer battery life and enables add-on features13.
Cash management StrongPoint’s cash management product, called CashGuard, provides a closed cash-handling system that counts, seals and secures the cash it receives from the customer at the checkout counter and in the back of the store. Cash-handling efficiency and security is an important issue for many retailers. The CashGuard significantly reduces the amount of manual cash-handling and thereby increases efficiency, removes potential loss from miscalculations and enables the store personnel to focus on customer service. In addition, it can remove issues related to theft, especially from own employees.
CashGuard Premium Coin Recycler CashGuard Premium Note Recycler
Source: Strongpoint Source: Strongpoint
Gunnebo estimates the global market for cash management solutions to be worth SEK 15bn and to grow at a CAGR of 5% until 202014. There are several competitors to StrongPoint globally, including Diebold Nixdorf, Glory, Cashlogy and Suzohapp, but StrongPoint has a very high market share in the Nordics, particularly in Norway. Gunnebo seems to be its strongest competitor in the Nordics and has, among others, delivered machines to Coop and Circle K.
The CashGuard is one of the company’s two most important products today and accounts for a relatively decent share of the segment’s revenues. However, it may also be one of the key growth drivers. The share of store purchases that are made in cash is still at between 60% and 80% in almost every European country. The exceptions are the Nordic countries, which have a low share of cash transactions due to low card fees and a high rate of technological adoption. The list price for a CashGuard Premium is NOK 80,000-100,000 per machine (excluding discounts). In addition, it has a product called CashGuard Unico that it sells at a lower price point. However, StrongPoint is now moving towards a rental solution (Easy Access) in Spain as this obviously reduces the initial capex for smaller retailers.
Self-checkout solutions – one of StrongPoint’s fastest-growing products Self-checkout solutions represent one of Strongpoint’s fastest-growing product categories. StrongPoint develops and sells both registers and software, which can be bought either together or on a stand-alone basis. Self-checkout registers are particularly well suited for stores with a high number of customers with small and medium-sized shopping carts. For the customers, it increases the speed of the store
13 Key competitors ranked in order of sales: SES imotag (about equal to Pricer in size), Henchao, SoluM, DisplayData and ALTJR. 14 Gunnebo annual report 2018
1 November 2019 ABG Sundal Collier 30
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visit, and for the retailers it significantly reduces cost of staffing. One store employee can handle up to eight self-checkout registers single-handedly.
Self-checkout registers Self-checkout register software
Source: Strongpoint Source: Strongpoint
As can be seen below, it is not only within retail that self-checkout systems are expected to see growth. Looking at the UK as a proxy for the European market, we see that several sectors are expected to see material growth for self-checkout solutions. Deployment of self-checkout solutions has also started to pick up in the European grocery sector, with installations at (among others) several Nordic grocery chains. Lidl has also started to pilot self-checkout solutions in several European countries, including France, and Poundland has started pilots in the UK15.
UK self-checkout system market by application Market shares of self-checkout system vendors USDm 180 5% 5% 2% 160 4% 140 9% 7% NCR 120 Toshiba 100 Diebold Nixdorf 80 6% 6% 8% Fujitsu 60 21% 3% 61% Digi 40 20 Others 0 Retail Hospitality Entertain- Travel Healthcare Others ment 2016 2024
Source: ABG Sundal Collier, Global Market Insights Source: ABG Sundal Collier, Global Market Insights
NCR is the largest vendor of self-checkout solutions globally with 61% of shipments in 2017, followed by Toshiba with 21% of the market. Diebold Nixdorf has a particularly strong position in Europe, where it has a ~30% market share. In the Nordics, ITAB Shop Concept holds a strong position as the market leader in Norway and Sweden. StrongPoint seems to have taken a solid position in the Baltics with deliveries to several major grocery chains such as Maxima, Coop and Rimi.
15 https://www.rbrlondon.com/wp-content/uploads/2018/06/SCO_Press_Release_250618.pdf
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Click & Collect StrongPoint provides Click & Collect pickup stations for the grocery sector; this enables customers to shop for groceries online and later pick them up at a physical store location, eliminating the need to wait for home delivery. The purchased goods are stored in lockers inside or outside the store. Then the customer receives a text message with a code to open it. Placing the lockers outside the store enables the customer to pick up the goods outside of the store’s opening hours.
There are many companies that provide Click & Collect lockers, but StrongPoint seems to distinguish itself from some by offering lockers with cooling and freezing. The list price for a locker can vary, but would be around NOK 300,000 for a small locker equipped with both cooling and freezing compartments. Since the launch of the product in the beginning of 2017, StrongPoint has installed over 100 Click & Collect lockers in Sweden, Norway, Russia, Lithuania, Estonia, Italy and Spain.
Click & Collect pickup stations
Source: Strongpoint
StrongPoint’s Click & Collect solution can also allow for selling of age-restricted items online to be collected from Click & Collect lockers without the assistance of the store attendants. When collecting the purchases, the customer confirms his age via the Yoti age verification app. Upon successful verification, the respective locker door unlocks, and the items can be collected.
E-commerce Logistics Suite and ShopFlow Logistics Suite In 2017, StrongPoint acquired Cub Systems, which had developed logistics solutions for retailers. The E-commerce Logistics Suite is a software solution that handles and optimises the entire product flow of e-commerce, including route planning, pickup and delivery either at home, or at a Click & Collect locker. ShopFlow Logistics manages the entire picking process for goods purchased online for delivery in a grocery store. StrongPoint is now investing in developing the E- commerce Logistics Suite further to increase its scalability and enable it to be distributed on a Software-as-a-Service (SaaS) basis.
1 November 2019 ABG Sundal Collier 32
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Use of ShopFlow Logistics to pick groceries E-commerce Logistics Suite route planning
Source: StrongPoint Source: StrongPoint
StrongPoint is one of the market leaders for these logistics systems in the Nordics16 and has several of the largest retailers as customers, including Coop Sweden and Glitter. In total, over 15,000 installations of the solution have been done in several European countries, including 350 Axfood stores, 250 Swedish Coop stores and 400 OKQ8 gas stations. It is also in use at Coop’s main warehouse for deliveries of online orders, a 6,000m2 large warehouse that was opened in Stockholm in 2017.
Vensafe Vensafe stores high value products such as tobacco, razors and medical equipment in a separate dispensers outside of the checkout registers. These products are typically among the most stolen items from stores, which is solved by storing them in the safe Vensafe dispenser. The customer simply browses for and selects the product she is interested in at the Vensafe kiosk, pays at the register and picks up her goods at the dispenser. Another feature of the Vensafe is that it provides the retailer with full inventory control as stock levels are monitored automatically. The list price for a Vensafe solution is ~NOK 150,000.
Vensafe dispenser Vensafe kiosk
Source: Strongpoint Source: Strongpoint
Demand for Vensafe solutions is also driven by regulatory scrutiny on sales and in- store marketing of tobacco products. In Norway, for example, the law states that tobacco products needs to be kept out of sight for the consumer. In May 2020, the new EU tobacco directive will come into force, which could potentially drive additional demand for Vensafe solutions.
16 StrongPoint
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Risks
A number of risks and uncertainties could affect StrongPoint’s business and financial performance. Some of these are:
Customer concentration StrongPoint’s core market is the Nordic grocery retail market, which is characterised by a very high concentration of key players. Several of these large grocery retailers are StrongPoint customers, and losing these customers could result in a significant loss of service and product sales for StrongPoint.
Dependence on large customer orders StrongPoint’s earnings are to some degree dependent on large customer orders for new products or the replacement of old products. If StrongPoint is unable to win large orders from new or existing customers, it could pose a significant risk to its future sales and earnings growth.
Price pressure As competition is fragmented with several competitors providing similar products, StrongPoint’s products and services could be exposed to significant price pressure from new and existing competitors trying to increase their market share.
Macroeconomic developments Demand for StrongPoint’s products is affected by general economic activity. An economic downturn could have a negative effect on the company’s earnings through lower sales.
Warranty issues The company’s results could be affected by potential costs related to warranty issues, such as it experienced in its Cash Security segment in 2018.
M&A The company aims to grow through M&A, which entails several risks such as integration risk.
FX StrongPoint reports in NOK, but generates some of its revenue in other currencies. While StrongPoint does not employ any currency hedges, it has some contracts in which it is specified that certain changes in exchange rates should be compensated for, which reduces the company’s exposure to short-term FX risk. The largest FX exposures are towards changes in the EUR and USD exchange rates.
Regulatory risks One potential future regulatory risk is a change to a cash-free society, where cash is no longer accepted as a means of payment. This would hurt the company’s sales of CashGuard machines. However, we find this very unlikely in the foreseeable future as cash is still used in 79% of all point-of-sale transactions in Europe.
Credit and counterparty There is a risk of customers not being able to meet their payment obligations, resulting in losses on accounts receivable.
Production risk All production facilities are subject to a risk of failure of machinery and equipment and other disruptions. This is an ever-present risk for all companies with their own production, but is also expected to occur from time to time. StrongPoint’s machinery and equipment are either leased or the investments in new equipment are to be 1 November 2019 ABG Sundal Collier 34
StrongPoint
covered by the company’s maintenance capex budget, at least up to a reasonable amount. Larger production disruptions that significantly reduce the company’s output could have an impact on the company’s earnings.
Liquidity risk StrongPoint’s cash flow fluctuates with its financial performance, entailing a risk of low liquidity in some periods. This is mitigated by the company’s strong balance sheet, which gives the company a large liquidity reserve.
Future expansion StrongPoint has been able to obtain a strong position in the Nordic market, with a strong historical sales CAGR of 8%. However, this does not necessarily imply that the business model can be copied to new markets in order to achieve future growth.
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Income Statement (NOKm) Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019e Sales 250 276 233 308 288 287 237 295 COGS -121 -132 -120 -162 -150 -149 -123 -155 Gross profit 130 145 113 146 138 138 114 140 Other operating items -118 -126 -98 -123 -111 -116 -97 -115 EBITDA 11 18 15 22 28 22 18 25 Depreciation and amortisation -4 -4 -4 -6 -10 -10 -9 -10 EBITA 7 14 11 17 18 12 8 15 EO items 0 0 0 0 0 0 0 0 Impairment and PPA amortisation -5 -5 -4 -4 -4 -4 -3 -4 EBIT 2 9 7 12 14 8 6 11 Net financial items 4 0 -2 -6 3 0 -2 -1 Pretax profit 6 9 4 6 17 9 4 10 Tax -1 -2 -1 -8 -4 -2 -1 -2 Net profit 5 7 3 -2 13 7 3 8 Minority interest 0 0 0 0 0 0 0 0 Net profit discontinued 0 0 0 0 0 0 0 0 Net profit to shareholders 5 7 3 -2 13 7 3 8 EPS 0.12 0.16 0.07 -0.05 0.30 0.16 0.06 0.18 EPS Adj 0.24 0.27 0.17 0.05 0.39 0.25 0.13 0.25 Total extraordinary items after tax 0 0 0 0 0 0 0 0 Tax rate (%) 15.5 26.0 23.3 138.2 20.9 17.9 28.4 21.0 Gross margin (%) 51.8 52.3 48.5 47.3 48.0 48.1 48.2 47.3 EBITDA margin (%) 4.6 6.6 6.5 7.3 9.6 7.7 7.5 8.4 EBITA margin (%) 2.9 5.1 4.7 5.4 6.3 4.3 3.6 5.1 EBIT margin (%) 0.8 3.2 2.8 4.0 4.9 2.9 2.3 3.9 Pretax margin (%) 2.6 3.4 1.8 1.9 5.8 3.0 1.7 3.5 Net margin (%) 2.2 2.5 1.4 -0.7 4.6 2.5 1.2 2.8 Growth rates Y/Y Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019e Sales growth (%) 0.1 16.2 13.9 18.9 15.3 3.9 1.8 -4.3 EBITDA growth (%) 7.0 172.9 7.3 7.8 141.1 20.6 17.4 10.6 EBIT growth (%) -32.9 +chg 7.3 2.0 626.0 -7.3 -17.1 -7.9 Net profit growth (%) 309.3 +chg 40.3 -chg 144.2 2.3 -13.6 +chg EPS growth (%) 309.3 +chg 40.3 -chg 144.2 2.3 -13.6 +chg Adj earnings numbers Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019e EBITDA Adj 11 18 15 22 28 22 18 25 EBITDA Adj margin (%) 4.6 6.6 6.5 7.3 9.6 7.7 7.5 8.4 EBITA Adj 7 14 11 17 18 12 8 15 EBITA Adj margin (%) 2.9 5.1 4.7 5.4 6.3 4.3 3.6 5.1 EBIT Adj 2 9 7 12 14 8 6 11 EBIT Adj margin (%) 0.8 3.2 2.8 4.0 4.9 2.9 2.3 3.9 Pretax profit Adj 12 15 9 10 21 13 7 14 Net profit Adj 11 12 8 2 17 11 6 12 Net profit to shareholders Adj 11 12 8 2 17 11 6 12 Net Adj margin (%) 4.3 4.4 3.3 0.7 6.0 3.9 2.5 4.1 Source: ABG Sundal Collier, Company data
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Income Statement (NOKm) 2012 2013 2014 2015 2016 2017 2018 2019e 2020e 2021e Sales 596 717 829 1,146 1,120 951 1,068 1,108 1,210 1,280 COGS -298 -378 -408 -630 -573 -472 -535 -577 -631 -667 Gross profit 297 338 420 516 547 479 533 530 579 613 Other operating items -257 -284 -359 -425 -435 -427 -466 -438 -471 -494 EBITDA 40 54 61 90 112 52 67 92 109 119 Depreciation and amortisation -8 -11 -12 -15 -16 -18 -19 -38 -39 -39 Of which leasing depreciation 0 0 0 0 0 0 0 0 0 0 EBITA 32 44 49 76 96 34 49 54 70 80 EO items -14 -15 -23 -17 -16 -14 -19 -15 -15 -15 Impairment and PPA amortisation -14 -15 -55 -17 -17 -14 -19 -15 -15 -15 EBIT 17 28 -6 59 78 20 30 39 54 65 Net financial items -9 28 -6 -9 1 -6 -4 1 -4 -4 Pretax profit 9 56 -12 50 79 14 26 40 50 61 Tax -15 -5 10 -13 -5 -4 -13 -8 -11 -13 Net profit -6 51 -2 36 74 10 13 31 40 48 Minority interest 0 0 0 0 0 0 0 0 0 0 Net profit discontinued 0 0 0 0 0 0 0 0 0 0 Net profit to shareholders -6 51 -2 36 74 10 13 31 40 48 EPS -0.14 1.16 -0.04 0.82 1.68 0.23 0.30 0.71 0.90 1.09 EPS Adj 0.41 1.28 0.19 1.19 1.70 0.51 0.80 0.98 1.17 1.36 Total extraordinary items after tax -14 -15 -23 -17 -16 -14 -19 -15 -15 -15 Leasing payments 0 0 0 0 0 0 0 0 0 0 Tax rate (%) 167.6 9.2 85.2 26.5 6.4 29.5 48.3 21.0 21.0 21.0 Gross margin (%) 49.9 47.2 50.7 45.0 48.8 50.4 49.9 47.9 47.9 47.9 EBITDA margin (%) 6.7 7.6 7.4 7.9 10.0 5.5 6.3 8.3 9.0 9.3 EBITA margin (%) 5.3 6.1 5.9 6.6 8.6 3.6 4.6 4.9 5.8 6.3 EBIT margin (%) 2.9 3.9 -0.8 5.1 7.0 2.1 2.8 3.5 4.5 5.1 Pretax margin (%) 1.5 7.9 -1.5 4.3 7.1 1.5 2.4 3.6 4.2 4.8 Net margin (%) -1.0 7.1 -0.2 3.2 6.6 1.1 1.3 2.8 3.3 3.8 Growth rates Y/Y 2012 2013 2014 2015 2016 2017 2018 2019e 2020e 2021e Sales growth (%) 11.3 20.2 15.6 38.3 -2.3 -15.0 12.2 3.7 9.3 5.8 EBITDA growth (%) -19.5 34.8 12.6 48.4 23.4 -53.0 28.6 37.1 17.4 9.8 EBIT growth (%) 134.0 62.4 -122.1 1,037.2 33.7 -74.6 50.1 31.4 38.8 19.5 Net profit growth (%) 89.8 971.2 -103.6 2,102.3 103.6 -86.5 34.0 133.6 26.9 21.0 EPS growth (%) 93.1 928.6 -103.4 2,157.9 103.6 -86.5 34.0 133.6 26.6 21.0 Profitability 2012 2013 2014 2015 2016 2017 2018 2019e 2020e 2021e ROE (%) nm 40.8 -0.7 13.4 24.0 3.3 4.9 12.0 15.2 17.6 ROE Adj (%) nm 65.2 30.7 26.1 34.8 12.7 18.9 23.4 26.7 28.6 ROCE (%) nm 40.0 -2.6 14.9 21.0 4.3 8.1 11.5 13.3 16.3 ROCE Adj(%) nm 60.1 21.9 24.4 29.7 11.8 18.7 19.3 20.8 23.9 ROIC (%) nm 13.1 -0.2 8.7 15.0 2.9 3.0 5.9 8.4 10.6 ROIC Adj (%) nm 20.2 0.6 11.3 18.1 4.9 4.8 8.2 10.8 13.1 Adj earnings numbers 2012 2013 2014 2015 2016 2017 2018 2019e 2020e 2021e EBITDA Adj 54 69 84 108 128 67 87 107 124 134 EBITDA Adj margin (%) 9.1 9.7 10.1 9.4 11.4 7.0 8.1 9.7 10.2 10.5 EBITDA lease Adj 54 69 84 108 128 67 87 107 124 134 EBITDA lease Adj margin (%) 9.1 9.7 10.1 9.4 11.4 7.0 8.1 9.7 10.2 10.5 EBITA Adj 46 59 72 93 112 48 68 69 85 95 EBITA Adj margin (%) 7.7 8.2 8.7 8.1 10.0 5.1 6.4 6.2 7.0 7.5 EBIT Adj 32 44 17 76 94 34 49 54 70 80 EBIT Adj margin (%) 5.3 6.1 2.0 6.6 8.4 3.6 4.6 4.9 5.8 6.3 Pretax profit Adj 37 87 66 84 113 43 64 70 81 91 Net profit Adj 23 82 76 71 108 38 52 61 70 79 Net profit to shareholders Adj 23 82 76 71 108 38 52 61 70 79 Net Adj margin (%) 3.8 11.4 9.2 6.2 9.6 4.0 4.8 5.5 5.8 6.1 Source: ABG Sundal Collier, Company data
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Cash Flow Statement (NOKm) 2012 2013 2014 2015 2016 2017 2018 2019e 2020e 2021e EBITDA 40 54 61 90 112 52 67 92 109 119 Net financial items -9 28 -6 -9 1 -6 -4 1 -4 -4 Paid tax -15 -5 10 -13 -5 -4 -13 -8 -11 -13 Non-cash items 9 14 -15 5 34 -16 0 0 0 0 Cash flow before change in WC 26 91 51 73 142 27 51 85 94 102 Change in WC 0 -113 -34 -67 54 -38 -48 20 -12 -13 Operating cash flow 26 66 46 50 161 25 18 51 53 66 CAPEX tangible fixed assets -6 -5 -13 -15 -29 -15 -11 -18 -18 -18 CAPEX intangible fixed assets 0 0 0 0 0 0 0 0 0 0 Acquisitions and disposals 2 21 -16 -9 -6 2 18 0 0 0 Free cash flow 22 83 16 27 126 11 25 33 35 48 Dividend paid -11 -11 -13 -15 -20 -66 -22 -24 -29 -36 Share issues and buybacks 0 0 0 0 0 0 0 -1 0 0 Other non cash items -10 -235 -79 -31 -15 -56 -5 -22 22 22 Decrease in net IB debt 0 -44 -23 -1 74 -57 -3 -45 28 34 Balance Sheet (NOKm) 2012 2013 2014 2015 2016 2017 2018 2019e 2020e 2021e Goodwill 0 111 142 153 113 139 141 135 135 135 Other intangible assets 0 114 86 75 56 82 60 45 29 14 Tangible fixed assets 0 36 43 55 85 81 58 107 86 65 Right-of-use asset 0 0 0 0 0 0 0 0 0 0 Total other fixed assets 0 19 42 29 33 22 14 8 8 8 Fixed assets 0 280 312 313 288 324 274 295 259 223 Inventories 0 86 96 125 101 131 128 120 121 127 Receivables 0 98 157 185 161 160 200 210 244 258 Other current assets 0 22 27 29 42 38 26 32 39 42 Cash and liquid assets 0 9 19 23 67 42 27 57 63 76 Total assets 0 494 611 675 659 696 655 714 727 725 Shareholders equity 0 251 247 297 321 281 265 257 268 281 Minority 0 0 0 0 0 0 0 0 0 0 Total equity 0 251 247 297 321 281 265 257 268 281 Long-term debt 0 44 39 37 33 25 50 82 60 39 Pension debt 0 0 0 0 0 0 0 0 0 0 Convertible debt 0 0 0 0 0 0 0 0 0 0 Leasing liability 0 0 0 0 0 0 0 0 0 0 Total other long-term liabilities 0 10 29 0 5 27 21 9 9 9 Short-term debt 0 9 47 54 29 68 32 74 74 74 Accounts payable 0 71 106 96 102 93 81 104 127 134 Other current liabilities 0 110 144 191 169 201 207 188 188 188 Total liabilities and equity 0 494 611 675 659 696 655 714 727 725 Net IB debt 0 44 67 69 -5 51 55 99 72 37 Net IB debt excl. pension debt 0 44 67 69 -5 51 55 99 72 37 Net IB debt excl. leasing 0 44 67 69 -5 51 55 99 72 37 Capital invested 0 392 459 527 448 523 521 522 497 474 Working capital 0 113 147 214 160 198 247 226 239 251 EV breakdown 2012 2013 2014 2015 2016 2017 2018 2019e 2020e 2021e Market cap. diluted (m) na na 302 590 676 493 395 477 477 477 Net IB debt Adj 0 44 67 69 -5 51 55 99 72 37 Market value of minority 0 0 0 0 0 0 0 0 0 0 Reversal of shares and participations 0 0 0 0 0 0 0 0 0 0 Reversal of conv. debt assumed equity 0 0 0 0 0 0 0 0 0 0 EV na na 370 659 670 544 450 577 549 514 Capital efficiency 2012 2013 2014 2015 2016 2017 2018 2019e 2020e 2021e Total assets turnover (%) nm 289.9 149.9 178.2 167.8 140.4 158.0 161.7 168.0 176.4 Working capital/sales (%) 0 7.9 15.7 15.8 16.7 18.8 20.9 21.4 19.2 19.1 Financial risk and debt service 2012 2013 2014 2015 2016 2017 2018 2019e 2020e 2021e Net debt/equity nm 0.18 0.27 0.23 -0.02 0.18 0.21 0.39 0.27 0.13 Net debt/market cap na na 0.25 0.17 -0.01 0.09 0.13 0.21 0.15 0.08 Equity ratio (%) nm 50.7 40.4 44.0 48.7 40.4 40.5 36.0 37.0 38.8 Net IB debt adj./equity nm 0.18 0.27 0.23 -0.02 0.18 0.21 0.39 0.27 0.13 Current ratio nm 1.13 1.01 1.06 1.24 1.02 1.19 1.15 1.20 1.27 EBITDA/net interest 8.60 12.55 15.49 21.72 58.82 23.74 21.56 24.35 27.13 29.79 Net IB debt/EBITDA 0 0.82 1.10 0.76 -0.05 0.98 0.81 1.08 0.66 0.31 Net IB debt/EBITDA lease Adj 0 0.64 0.80 0.64 -0.04 0.77 0.63 0.93 0.58 0.28 Interest cover 6.77 10.10 12.45 18.19 50.46 15.41 15.64 14.26 17.41 20.07 Source: ABG Sundal Collier, Company data
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Valuation and Ratios (NOKm) 2012 2013 2014 2015 2016 2017 2018 2019e 2020e 2021e Shares outstanding adj. 44 44 44 44 44 44 44 44 44 44 Fully diluted shares Adj 44 44 44 44 44 44 44 44 44 44 EPS -0.14 1.16 -0.04 0.82 1.68 0.23 0.30 0.71 0.90 1.09 Dividend per share Adj 0.3 0.3 0.4 0.5 1.5 0.5 0.6 0.7 0.8 1.0 EPS Adj 0.41 1.28 0.19 1.19 1.70 0.51 0.80 0.98 1.17 1.36 BVPS 0 5.65 5.56 6.70 7.23 6.33 5.97 5.80 6.05 6.34 BVPS Adj 0 3.16 2.36 3.24 4.68 3.20 2.79 2.75 3.00 3.29 Net IB debt / share 0 1.0 1.5 1.5 -0.1 1.2 1.2 2.2 1.6 0.8 Share price na na 6.82 13.30 15.23 11.10 8.90 10.75 10.75 10.75 Market cap. (m) na na 302 590 676 493 395 477 477 477 Valuation 2012 2013 2014 2015 2016 2017 2018 2019e 2020e 2021e P/E na na -170.4 16.2 9.1 49.0 29.3 15.2 12.0 9.9 EV/sales na na 0.45 0.57 0.60 0.57 0.42 0.52 0.45 0.40 EV/EBITDA na na 6.1 7.3 6.0 10.4 6.7 6.2 5.1 4.3 EV/EBITA na na 7.5 8.7 7.0 16.0 9.2 10.6 7.9 6.4 EV/EBIT na na -59.1 11.2 8.6 27.3 15.1 14.7 10.1 7.9 Dividend yield (%) na na 5.1 3.4 9.8 4.5 6.2 6.0 7.4 8.8 FCF yield (%) na na 5.3 4.6 18.6 2.3 6.3 7.0 7.4 10.1 Lease adj. FCF yield (%) na na 5.3 4.6 18.6 2.3 6.3 7.0 7.4 10.1 P/BVPS na na 1.23 1.99 2.11 1.75 1.49 1.85 1.78 1.70 P/BVPS Adj na na 2.89 4.10 3.25 3.47 3.19 3.91 3.59 3.27 P/E Adj na na 36.3 11.2 9.0 21.9 11.1 11.0 9.2 7.9 EV/EBITDA Adj na na 4.4 6.1 5.3 8.2 5.2 5.4 4.4 3.8 EV/EBITA Adj na na 5.1 7.1 6.0 11.3 6.6 8.3 6.5 5.4 EV/EBIT Adj na na 22.3 8.7 7.1 16.0 9.2 10.6 7.9 6.4 EV/cap. employed na na 1.1 1.7 1.8 1.5 1.3 1.4 1.4 1.3 Investment ratios 2012 2013 2014 2015 2016 2017 2018 2019e 2020e 2021e Capex/sales 1.1 0.6 1.6 1.3 2.6 1.6 1.0 1.6 1.5 1.4 Capex/depreciation 76.6 43.0 112.0 99.8 185.4 83.9 59.7 46.4 45.7 45.7 Capex tangibles/tangible fixed assets nm 12.5 31.3 26.7 34.4 19.0 19.1 16.6 20.6 27.4 Capex intangibles/definite intangibles nm nm nm nm nm nm nm nm nm nm Depreciation on intangibles/definite intangibles nm nm nm nm nm nm nm nm nm nm Depreciation on tangibles/tangibles nm 29.0 27.9 26.7 18.6 22.6 31.9 35.8 45.2 59.9 Source: ABG Sundal Collier, Company data
1 November 2019 ABG Sundal Collier 39
StrongPointStrongPoint
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Production of report: 01/11/2019 12:16 CET. All prices are as of market close on 31 October, 2019 unless otherwise noted.
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ABGSC Research Department
Joint Global Head of Research John Olaisen +47 22 01 61 87 Christer Linde +46 8 566 286 90
Strategy Metals & Mining Christer Linde, Quant/Technical +46 8 566 286 90 Martin Melbye +47 22 01 61 37 Derek Laliberte +46 8 566 286 78 Bengt Jonassen +47 22 01 60 98 Bengt Jonassen +47 22 01 60 98 Petter Nyström +47 22 01 61 35
Capital Goods Oil & Gas Anders Idborg +46 8 566 286 74 John Olaisen +47 22 01 61 87 Olof Cederholm +46 8 566 286 22 Karl Fredrik Schjøtt-Pedersen +47 22 01 61 65 Karl Bokvist +46 8 566 286 33 Oil Service Chemicals John Olaisen +47 22 01 61 87 Martin Melbye +47 22 01 61 37 Haakon Amundsen +47 22 01 60 25 Bengt Jonassen +47 22 01 60 98 Lukas Daul +47 22 01 61 39 Petter Nyström +47 22 01 61 35 Karl Fredrik Schjøtt-Pedersen +47 22 01 61 65
Construction & Real Estate Online Gaming Tobias Kaj +46 8 566 286 21 Aksel Øverland Engebakken +47 22 01 61 11 Bengt Jonassen +47 22 01 60 98 Erik Moberg +46 8 566 286 87 Laurits Louis Kjaergaard +45 35 46 30 12 Stefan Knutsson +46 8 566 286 37 Consumer Goods Jesper Birch-Jensen +46 8 566 286 13 Petter Nyström +47 22 01 61 35 Pulp & Paper Morten Raunholt Eismark +45 35 46 30 16 Martin Melbye +47 22 01 61 37 Ludvig Kapanen +46 8 566 286 91 Øystein Elton Lodgaard +47 22 01 60 26 Credit Research Rikard Magnus Braaten +47 22 01 60 86 Renewable Energy Andreas Johannessen +47 22 01 60 31 Casper Blom +45 35 46 30 15 Haakon Amundsen +47 22 01 60 25 Petter Nyström +47 22 01 61 35
Glenn Kringhaug +47 22 01 61 62 Retail Karl Fredrik Schjøtt-Pedersen +47 22 01 61 65 Fredrik Ivarsson +46 8 566 286 95 Eric Wahlström +46 8 566 286 25 Ludvig Kapanen +46 8 566 286 91 Financials Seafood Magnus Andersson +46 8 566 294 69 Martin Kaland +47 22 01 60 67 Mads Thinggaard +45 35 46 30 18
Patrik Brattelius +46 8 566 286 64 Services Jan Erik Gjerland +47 22 01 61 16 Morten Raunholt Eismark +45 35 46 30 16 Jonas Bru Lien +47 22 01 61 71 Victor Forssell +46 8 566 286 92
Food & Beverages Shipping & Transport Morten Raunholt Eismark +45 35 46 30 16 Dennis Anghelopoulos +47 22 01 60 37
Healthcare Casper Blom +45 35 46 30 15 Rickard Anderkrans +46 8 566 286 73 Lukas Daul +47 22 01 61 39
Daniel Thorsson +46 8 566 286 82 Telecom Operators Victor Forssell +46 8 566 286 92 Peter Kurt Nielsen +44 207 905 5631 Jannick Lindegaard Denholt +45 35 46 30 13 Utilities lnvestment Companies Martin Melbye +47 22 01 61 37 Derek Laliberte +46 8 566 286 78 Petter Nyström +47 22 01 61 35 IT Small Caps Aksel Øverland Engebakken +47 22 01 61 11 Daniel Thorsson +46 8 566 286 82 Daniel Thorsson +46 8 566 286 82 Laurits Louis Kjaergaard +45 35 46 30 12 André Thormann +45 35 46 30 19 Simon Granath +46 8 566 286 32 Jesper Birch-Jensen +46 8 566 286 13
Media Aksel Øverland Engebakken +47 22 01 61 11 Derek Laliberte +46 8 566 286 78
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