Strategic transformation paves way for higher earnings

Now a top 5 player in fragmented RRC market

DCF valuation range of SEK 5-15 per share

International manufacturer of radio remote control solutions
Allgon is a leading international manufacturer of radio remote controllers for industrial applications through two wholly owned subsidiaries: Tele Radio and Åkerströms. The company acquired Tele Radio in late 2018 after a decision to focus on the radio remote control (RRC) market. The acquisition more than doubled Allgon’s sales and added 220 employees as well as a large portfolio of complementary products. Allgon now has a global share of 6-7% in a market valued at SEK 4.6-5.0bn in 2016 and estimated to have grown by 12% y-o-y in 2014-16.

New strategic focus has improved outlook
We expect Allgon’s transformation to boost its sales and earnings over the coming years. Demand for RRC solutions from large industrial corporations, a broader customer base and product portfolio, and Tele Radio’s plans for geographical expansion are all likely to fuel growth for the group. Management is also targeting synergies of SEK 5m per year over the coming three years. Against this background, we forecast sales to rise from SEK 503m (pro forma) in ’18 to SEK 660m in ‘21e, implying a CAGR of 9.5%. We forecast EBITDA of SEK 100m in ‘21e, for an EBITDA margin of 15.2%.

DCF value range of SEK 5-15 per share
We base our valuation on three DCF scenarios in which we assume different growth rates and EBITDA margins for Allgon. By setting the terminal period at ’31e and applying a WACC of 11.3%, our scenarios indicate a valuation range of SEK 5-15 per share. In our view, the main risks to Allgon are a difficult integration of Tele Radio and a macro slowdown leading to lower than expected market growth, both of which, if severe, could lower the bottom end of our value range.

info@introduce.se (Introduce.se)

ABG Sundal Collier - Introduce.se