Analyst Group comments on EPTI’s report for the first quarter 2022

EPTI published, May 24, its interim report for the first quarter of 2022. The following are some key events that we have chosen to highlight in connection with the report:

  • Net sales grew by 495% – of which 56% organic growth
  • The company’s cost base
  • The net asset value increased by 1% and amounted to SEK 844m

Net sales grew by 495%

For the first quarter of 2022, EPTI showed net sales of SEK 54.0m (9.1), which corresponds to a growth of 495% compared to the comparable quarter in 2021. During Q1-22, the business area called EPTI Core, which includes internal companies that provides operational support to the portfolio companies and performs external development assignments, presented net sales of SEK 45.7m (13.8), corresponding to a growth of 330% compared with Q1-21. The EPTI Incubation business area, which includes majority-owned growth companies, grew the most in terms of percentage during the quarter, with net sales amounting to SEK 21.6m (4.8), which corresponds to a growth of 511% compared with Q1-21.

During Q1-22, EPTI once again delivers strong growth, where we believe that organic growth is above all an important KPI for measuring the portfolio companies’ operational development. During the period, EPTI’s organic growth amounted to 56%, which Analyst Group sees as a strong development and a proof that the company’s growing ecosystem contributes to the portfolio companies, being able to accelerate growth through operational support within the Group,” says Analyst Group.

The company’s cost base

Regarding the total operating expenses, excluding depreciation and amortization, these amounted to approximately SEK -74.6m (-11.9) during Q1-22, corresponding to an increase of 528%. Percentage wise, this is a large increase, however, EPTI is in a completely different stage and is a significantly larger company today compared with Q1-21, which is why the comparison is somewhat misleading. If we instead compare with the last quarter (Q4-21), which on the other hand does not consider any seasonal variations, operating expenses increased by 7% while net sales growth (Q-Q) amounted to 17%, which means that sales have increased faster than costs during the period. Overall, we believe that EPTI has developed with good cost consciousness during the period, where the EPTI Core shows a stable EBITDA margin of 14%, while sales have risen faster than costs in EPTI Incubation, which indicates a positive profitability trend.

At the end of Q4-21, investable capital amounted to approximately SEK 38.7m of which SEK 25.7m constitutes cash and the remaining SEK 13m consists of a credit facility. Analyst Group is positive that EPTI continues to have stable investable capital, as we believe that it is essential to continue to execute on the company’s acquisition strategy, at the same time as it can be difficult to raise external capital from the stock market during these turbulent times.

The Net Asset Value Increased by 1% and Amounted to SEK 844m

At the beginning of 2022, EPTI’s net asset value (NAV) amounted to approximately SEK 836m and during the first quarter of 2022, the company had a total increase in value of approximately SEK 8m, which means that EPTI’s NAV at the end of March 2022 amounted to approximately SEK 844 million. This is despite the fact that risk appetite among investors has decreased, which has created a more restrained climate for raising capital. During the period, the company’s net asset value was positively affected, mainly as a result of the acquisition of Linky Tech AB and EPTI’s increased ownership in the portfolio company Moblrn, which totals an increase of approximately SEK 75m. At the same time, EPTI’s NAV was negatively affected, mainly because of EPTI Factory’s valuation declining during the quarter. This is because EPTI Factory’s valuation is based on the company’s EBITDA result (rolling 12 months), which has decreased during the period.

After the end of the period, EPTI’s majority-owned subsidiary EPTI Core acquired 100% of the shares in the SEO company Adhype AB, which is expected to add SEK 75m to EPTI’s net asset value. Furthermore, EPTI acquired an additional 45% of the shares in the previously minority-owned portfolio company Mäklarappen Sverige AB (Immomer). Through the transaction, EPTI’s NAV is estimated to increase by an additional SEK 13m. Given EPTI’s two most recent transactions, as well as the reported net asset value as of the last March in 2022, EPTI’s total NAV is expected to amount to approximately SEK 925m, according to Analyst Group’s calculations. Based on the company’s market value (2022-05-25) of SEK 427 million, the company is traded at a discount of approximately 46%, which we do not consider to be justified given that EPTI’s portfolio company continues to make operational progress, and considering that EPTI acts as an active owner in unlisted growth companies, which is difficult for the individual investor to reflect himself, which is why Analyst Group believes that the current market capitalization continues to invite an attractive investment opportunity with good risk-reward.

Overall, we see that EPTI delivered a good report for the first quarter of 2022. The company showed high organic growth during the period, which indicates that the portfolio companies are accelerating development by taking part in operational support within the company’s independent ecosystem. At the same time, EPTI succeeds in increasing the company’s net asset value marginally, despite the fact that recent months have been characterized by a low risk appetite and a restrained climate for raising capital.

We will return with an updated equity research report of EPTI.