Q3 sales of SEK 133m, +1.5% vs. ABGSCe…

…alongside EBITDA of SEK 24m, +31.4% vs. ABGSCe

Organic y-o-y growth of 11.9%

Q3’19 vs. ABGSCe
Allgon reported a strong Q3 report today which were in line with our topline estimates, but lower than expected opex contributed to a profitability beat. Allgon generated sales of SEK 133m, +1.5% vs. ABGSCe, which corresponded to a total y-o-y growth rate of 46.1%, but an organic growth rate of 11.9% when adjusting for FX and M&A. It’s worth highlighting that the Tele Radio acquisition was only included for 2 months in Q3’18. The reported gross margin was 73.4%, slightly below our estimate of 75.1%, probably due to the product mix. The industrial radio control segment reported sales of SEK 114m, corresponding to 85.9% of net sales, which was in line with our estimate of SEK 111m. The segment showed very strong profitability, with an EBITDA of SEK 30m, corresponding to an EBITDA margin of 25.9%. On a group level, this yielded an EBITDA of SEK 24m, +31.4% vs. ABGSCe, for an EBITDA margin of 18.0%. It should be noted that EBITDA includes positive IFRS 16 effects of SEK 2m.

Tele Radio addresses geopolitical risks
Tele Radio recently established wholly owned subsidiaries in Brazil, Russia and France. Management does not expect the subsidiaries to contribute any noticeable amounts during ‘19e, but they should be up and running in early ‘20e, as to contribute to the group figures during H1’20. On a different note, in order to counteract Tele Radios geopolitical risk, where products are assembled in China and shipped to the U.S., management has decided to move part of the assembly process from China to a partner in Vietnam. As such, part of the U.S./China tariffs will be offset. Management has not, as of yet, taken any actions in regards to Brexit, and its potential effect on Tele Radio’s SEK 25m annual sales in the U.K.

EV/EBITDA 8x-5x for ‘19e-‘21e, ~35% below peers
Based on our estimates, Allgon is trading at an EV/EBITDA of 8x-5x for ‘19e-‘21e,
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