StrongPoint - Becomes a pure growth company

Sells (non-core) Labels division for 9-11x ‘21e EBITDA 100% focus on Retail Technology + M&A firepower Trading at 16x ‘22e EV/EBIT Sells a non-core business area for a good price StrongPoint today announced that it will divest its Labels segment. Combined with the previous divestment of Cash Security, this transforms StrongPoint into a pure Retail Technology company (in-line with its strategy). The de-merger is expected to take place during August 2021 and will result in a net accounting gain of NOK 165m. The purchase price is not officially disclosed, but we estimate that it was sold at an EV of NOK 200-250m (adding the NOK 165m gain to the book value of the subsidiaries).

This would give an EV/EBITDA multiple of 8. 7-10. 7x on our 2021 EBITDA estimate for the Labels segment (NOK 23m).

We find the selling price attractive given that the Labels business is a low growth (low single-digit) and capital-intensive business. M&A firepower secured We expect the funds from the acquisition to be deployed into M&A. With a net cash position of NOK 220-260m, and potential to raise debt, we consider StrongPoint to have plenty of firepower for M&A (without having to raise equity).

Potential targets could either be a company with a new product/technology, or a distributor with an established customer portfolio in a new market, where StrongPoint can introduce its product portfolio and thereby realize cross-selling synergies (as the company has done with great success in the Baltics). However, we expect management to be prudent when it comes to both the price and quality of such targets. Trading at 16x EV/EBIT, with upside risk to estimates Subtracting the Labels earnings from our estimates would result in a drop in 2021e EBITDA of ~19%, but EBIT is only reduced by ~14% (high D&A in Labels).

This implies that the company is now trading at 16x EV/EBIT for 2022e. However, keep in mind that StrongPoint has signed a number of large agreements since our last estimate revision in.