StrongPoint
StrongPoint - Capitalising on retail megatrends (ABG Sundal Collier)
2019-08-22 06:34
Leading provider of technology solutions to retailers
We see strong growth, driven by margin pressure in retail
Trading 20% below peers: ’20e adj. P/E 10x, 7% div. yield
Broad product portfolio and strong position in home marketsStrongPoint is a retail technology company that sells a wide variety of technology solutions to increase efficiency, reduce theft, enhance customer experience, and facilitate online sales for retailers. Its product portfolio includes electronic shelf labels (ESLs), self-checkout counters, cash management, and e-commerce solutions. The company also produces security cases for cash-in-transit and adhesive labels, which provides a good cash flow that it can reinvest in the retail technology business. StrongPoint has strong market positions in Norway, Sweden and the Baltics, and aims to grow in selected other markets such as Spain.
We expect strong growth, driven by margin pressure in retail
The rapid growth in e-commerce is putting pressure on margins for retailers. For StrongPoint, this creates a double opportunity, because the company 1) delivers technology solutions that help retailers increase their profitability, and 2) sells products that enable retailers to develop their own e-commerce offerings. Moreover, cash is still used in 79% of all transactions in Europe, creating a need for efficient cash handling. We expect these trends to drive 7% sales CAGR for StrongPoint from 2018 to 2021e. Combined with NOK 30m in cost savings, we expect underlying EBITDA (excl. a positive one-off and IFRS16 effects) to double from NOK 46m in 2018 to NOK 96m in 2021e.
Trading ~20% below peers, ’20e adj. P/E 10x, 7% div. yield
On our estimates, the StrongPoint share is trading ~20% below the average of its peers. Using the lowest to the highest of peer multiples for 2019e-2021e, we find an implied price range of NOK 11.4-30.3/share. Our DCF valuation returns a price range of NOK 12-19/share. We estimate an FCF to equity yield of 6.5-9% in 2019e-2021e, which could
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