Tempest Security: Further growth on the horizon - SEB
Growing, despite the challenging circumstances
As expected, Tempest has not been unaffected by COVID-19 and the impact differs quite substantially between the different service offerings. Risk solutions faced most challenges, mainly attributable to its UK exposure, the divestment of NPA, and reduced activity in GPG, resulting in a sales decline of 37% y/y. Security Solutions was better than we had expected with sales growth of 23% y/y, supported by recent large contract assignments, and the high-margin services within the Other segment also developed favourably.
Updated revenue target of SEK 1,000m by 2025
The adjusted EBITDA of SEK 3.4m (excluding a divestment gain of SEK 1.4m) beat our expectation of SEK 1.2m, and the margin turnaround story continues with profit improvement remaining in a positive trend. In addition, Tempest presented a new revenue target of SEK 1,000m by 2025 (previously SEK 500m by 2022), implying sales CAGR of more than 20% per annum. The long-term EBITDA margin target of 10% is unchanged. Therefore, despite the challenging environment and a slight slowdown in growth in 2020, we consider the long-term investment case to be intact and expect growth to accelerate again in 2021.
New mid-point DCF value of SEK 54 per share
Following the report, we have increased our short-term earnings forecast and derive a new DCF-based fair price range of SEK 45-62 per share with a mid-point value of SEK 54 (WACC of 7.5%, steady state EBIT margin of 4.0%).