Q3 organic sales +11.9% y-o-y, EBITDA +31.4% vs. ABG

Estimates for ’20e-’21e intact

DCF range of SEK 6-18 per share, support in SOTP

Lower than expected opex contributed to strong earnings beat
Allgon reported its Q3 report today. Lower activity during the summer months contributed to lower than expected opex, causing a strong earnings beat, with EBITDA +31.4% vs. ABGSCe. Reported net sales were SEK 133m, corresponding to total y-o-y growth of 46.1%, and organic growth of 11.9% when we adjust for FX and M&A. Looking at the industrial radio control segment specifically, the Q3 performance was very strong. Sales for the segment were SEK 114m, mainly driven by Tele Radio, which corresponds to y-o-y growth of 20.1%, in combination with EBITDA of SEK 30m, for a margin of 25.9%. As such, the segment constituted 85.9% of net sales. The IoT segment reported sales of SEK 7m, together with EBITDA of SEK -2m, as the segment was heavily affected by lower activity during the summer months. Meanwhile, the Connectivity segment contributed SEK 12m in sales, with EBITDA of SEK -1m. On a group level, this yielded EBITDA of SEK 24m, for a margin of 18.0%, which beat our estimate of SEK 18m by 31.4%.

Minor positive estimate revisions for ’20e-’21e
We make no major changes to our estimates for Q4’19e or ’20e-’21e, but we see upside potential for the coming years driven by Tele Radio’s geographical expansion into Brazil, Russia and France. Management highlights that it expects the new subsidiaries to be profitable within a year, but that they will start contributing to the group top line in H1’20.

EV/EBITDA 8.4x-5.5x on ’19e-’21e, ~30% below peer avg.
We maintain our DCF fair value range where our three scenarios indicate a fair value of SEK 6-18 per share. Furthermore, we find support for our DCF fair value range in our sum-of-the-parts valuations, even if we value Allgon’s non-core segments, Connectivity and IoT, at 0. Based on our updated estimates, we find that Allgon is trading at an EV/EB
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