Polygiene - A master plan added

Vertical integration of current supplier Addmaster EPS increase of 21% for 2022e DCF valuation range SEK 29-48 (23-41) Offering now includes both hard surfaces and textiles Polygiene has entered into an agreement to acquire its sole supplier of additives in the UK-based company Addmaster. In addition to role of supplier to Polygiene, Addmaster is focused on additives for hard surfaces and has a strong financial track record with more than 150 customers, including some blue-chip names like Tesco and Atlas Copco. The acquisition price amounts to an EV of SEK 374m, corresponding to LTM EV/EBITDA of 13. 5x.

Polygiene’s management sees potential synergies on the EBIT level of SEK 61m on a three-year basis, most of which is through cross-selling and margin synergies. The deal will be financed through a directed share issue of SEK 280m and an issue of new Polygiene shares with a value of SEK 125m to the sellers. In total, it leads to a 41.

9% dilution for current shareholders. We include 50% of mentioned synergies We think the acquisition, excluding potential synergies, is value creative since the acquisition price indicates a lower valuation multiple for Addmaster than what Polygiene is currently trades at. By adding in the potential synergies, some of which we believe are low-hanging fruit, even more value can be unlocked.

We have included 50% of the mentioned synergies into our estimates, together with an estimated external sales of SEK 72m for Addmaster in 2021e. In total, it leads us to increase our sales by 44-46%, EBIT by 106-122% and most importantly EPS by 7-21% for 2021e-2022e. 2021 will be an exciting year for Polygiene The Addmaster acquisition adds to an already strong order book going into 2021.

There will be plenty of work for management to execute on, but the business plan certainly does not lack ambition. We raise our DCF valuation range to SEK 29-48 (23-41) following the acquisition. In 2022e, when synergies are expected to show, the EV/EBIT valu.