• Q4 de-risks 2023 estimates
• Strategy update: 2025 targets reiterated
• '23e adj. P/E ~16x, DCF points to NOK 36-96/share

Q4 numbers above expectations, and 2025 targets reiterated

StrongPoint reported better Q4 results than expected with EBITDA of NOK 33.6m, +14.4m (74%) above FactSet consensus, and reiterated its 2025 strategic targets (NOK 2.5bn sales, 13-15% EBITDA margin) at its Strategy Update Session. The key deviations were: significantly higher revenues in ALS (NOK 101m, +124% vs our 45m) as well as better opex levels (+3m) on the back of lower e-com investments. On the back of the better numbers in Q4, we make small positive estimate changes ('23e-'24e EBIT +3%), but even more importantly: the performance materially de-risks the 2023 estimates.

Margin rebound: Q4 was a turning point

In 2022 StrongPoint ramped up its investments in R&D and sales/marketing of its e-com logistics solutions to fuel growth towards its 2025 strategic targets. As it does not capitalise expenses, this has cut into adj EBITDA margins, which reached 5.8% in '22 vs 6.9% in '21. However, on a slowdown in demand StrongPoint has now reduced its investments in e-commerce to reflect current market demand, positively impacting payroll and opex by ~NOK 4m in Q4 compared to previous quarters. In our view, this should help a margin rebound towards 7.7% in '23e.

Resilient customer base — '23e adj P/E ~16x

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 ~16x 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 4.4x. Our DCF points to a price range of NOK 36-96, with mid-assumption output NOK 56/share.