StrongPoint
StrongPoint - Delivering in uncertain times (ABG Sundal Collier)
2020-06-26 13:54
Orders de-risking estimates: ‘2020e EPS up ~2%.
Target: 15% sales CAGR and ARR of NOK 750m by ‘25
Big growth potential: ‘21e adj. P/E is 9.4x and 8% yield
2020e EPS marginally up (2%)We lift our 2020e EPS by ~2% on slightly higher earnings in Labels and the key segment Retail Technology. Strong grocery retail sales combined with e-commerce momentum in Sweden (click and collect lockers) and price hikes for ESL, all drive the positive revision. Furthermore, earnings risk for the small segment, Cash Security, is materially reduced in our view, given the announced order of delivering 357 cash-in-transit cases in Q3 (contract value of NOK 10-12m). On the negative side is the lock down in Spain due to COVID-19, primarily hurting its HORECA sales. However, Spain is a relatively small country for StrongPoint (~7% of sales) and we do expect a rebound over the coming mounts.
2025 ambition corresponding to an EPS north of NOK 5
StrongPoint aims to grow revenues to NOK 2.5bn by 2025, with an EBITDA margin of 13-15%. This would give an EBITDA of NOK 350m at the mid-point (up ~250% from ’19) or an EPS north of NOK 5. The NOK 2.5bn in revenue by 2025 implies an organic CAGR of ~15%. Even more important is the fact that NOK 750m, or 30%, of the targeted NOK 2.5bn in sales is expected to be ARR (annual recuing revenue). This would be up from today’s NOK 300m. For StrongPoint, ARR manly consists of service agreements, licenses, installations and rentals. In our view, it is clear that the market is not discounting that management will deliver on its ambitions as the stock would be trading at a P/E in ’25 of ~2x. However, if StrongPoint delivers even stronger earnings growth in the coming quarters, this could easily change the perception of the market.
Trading ~25% below peers - ’21 adj. P/E of 9.4x
The long-term growth potential is solid, driven by favourable market trends. The 2021e adj. P/E is 9.4x (adj. for an FX loss and depreciation of intangibles) and the FCF yield is ~8%. It trades
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