StrongPoint: Facing rough markets – ABG

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• Q2: Soft sales hit profitability
• Orders needed to add confidence to 2025 targets
• Estimates down, ’23e adj. P/E ~14x

Q2 numbers soft as customers are delaying orders
StrongPoint’s Q2 was soft, with sales down 3% y-o-y excl M&A (+5% included). This is clearly not good enough, but a challenging market was to blame: Customers are postponing and delaying orders, in particular in the Nordics. Actually, revenues for Noway and Sweden were down 20% and 13% y-o-y, respectively. This obviously hit profitably hard, as StrongPoint has invested for growth, with opex up 18% y-o-y., i.e. clean Q2 EBITDA was NOK 3.6m, down from NOK 10.5m in Q2’22. On the positive side, cash flow from operations was strong at NOK 60m, helped by lower WC (lower accounts receivables). We have taken a more cautious view, and reduced ’23e EBIT by 19% and ’24e by 9%.

2025 targets reiterated
StrongPoint reiterated its 2025 targets: sales of NOK 2.5bn and an EBITDA margin of 13-15%. Furthermore, StrongPoint says activity is high and that leads and the pipeline should result in improved revenue growth next quarter. However, as StrongPoint ramped up its investments in R&D and sales/marketing of its e-com logistics solutions in 2022 to fuel growth towards its 2025 strategic targets, profitability is being hit now that customers are delaying orders. To add confidence to its financial targets, StrongPont needs, in our view, to convert leads to real projects. When that materializes, investor confidence should start to re-build.

Resilient customer base — ’23e adj P/E ~14x
Given that grocery retailers constitute ~85% of StrongPoint’s revenue base, we argue it should be able to weather economic uncertainty better than companies with a broader retail exposure. The share is trading at an adj. P/E of ~14x for ‘23e. Based on its 2025 targets (NOK 350m in EBITDA at the mid-point), the EPS could increase to NOK 5.3 over the next years if reached, i.e. P/E would drop to 3.6x.

https://cr.abgsc.com/contentassets/1db6d80de80847bdb2e2780c09fb2e31/pdf/facing-rough-markets.pdf

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