Industrial radio control reports organic growth of 18.9%

Q1’19 EBITDA of SEK 28m beat ABGSCe by 50.5%

We raise estimates to reflect improved outlook

New levels of profitability for the new Allgon
Allgon’s Q1’19 report beat our already lofty estimates on just about every metric, as the industrial radio control segment showed newfound levels of earnings and growth, coupled with a strong quarter for Connectivity. Reported sales were SEK 149m, which corresponds to a y-o-y growth rate of 218.2%, driven by the acquisition of Tele Radio. When we adjust for currency effects and acquisitions, we arrive at an organic growth rate of approximately 14% for the group. Reported EBITDA beat our estimate by approximately 50.5%, as it came in at SEK 27.6m, which corresponded to a margin of 18.5% for the group. This marks a new high in terms of profitability for the new Allgon, but we note that the IFRS 16 implementation had a positive effect on EBITDA of SEK 2.4m.

No signs of macroeconomic factors affecting demand
During the quarter, Allgon attended the construction machinery trade fair Bauma, where both Tele Radio and Åkerströms displayed their products, including Tele Radio’s new PUMA product line. According to management, feedback from customers and competitors points to a stable demand for industrial radio control products, and recent macroeconomic developments do not seem to have had an effect as of yet.

Adjusted DCF scenario value range of SEK 6-18 per share
Following the very strong Q1 report, we have adjusted our three DCF scenarios, which assume different growth rates and EBITDA margins, to reflect the improved outlook. Our scenarios still set the terminal period at ‘31e and they apply a WACC of 11.3%, but we now find a valuation range of SEK 6-18 SEK per share. As a complement to the DCF scenarios, we compare Allgon across two peer groups. Consequently, we find that at the current share price, Allgon is trading at an EV/EBITDA of 6.8x for ‘19e based on our updated est
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