Analyst Group comments on EPTI’s report for the fourth quarter 2021

EPTI published today, February 25, its interim report for the fourth quarter of 2021. The following are some key events that we have chosen to highlight in connection with the report:

  • Net sales grow by 491% (!)
  • How the company’s costs have developed
  • The net asset value increased by 22% and amounted to SEK 836m
  • Our view of the company’s recent events

Net sales grow by 491% (!)

For the fourth quarter of 2021, EPTI shows net sales of SEK 46.1m (7.8), which corresponds to a growth of as much as 491% compared to Q4-20. Analyst Group assumes that there is no single portfolio company or a special factor that is behind the strong growth during the period, but we see this as a strong proof that EPTI’s portfolio companies continues to develop well, and as a result of several months of work with implemented strategies that have borne fruit. If we look into the full year 2021, EPTI delivers net sales of SEK 86.2 million, which with capitalized developing costs and other operating income sums up to SEK 112.6 million in total income, an increase of 118% compared with 2020. During the same period the organic growth amounted to 22%, which is considered further proof that EPTI’s model works and that the portfolio companies can accelerate growth by being part of the EPTI group and by that taking part in operational support in terms of e.g. resources, capital and technology.

How the company’s costs have developed

Regarding the total operating expenses, excluding depreciation and amortization, these amounted to approximately SEK -70.0m (-13.3) during Q4-21, corresponding to an increase of 425%. The increase is due in particular to non-recurring costs in connection with the acquisition of Talnox Group AB, which also led to increased staff costs, as well as costs attributable to the reverse acquisition of Invajo. In other respects, the expanded total costs consists of increased direct costs that are directly attributable to technology development and sales, which Analyst Group considers to be critical for the portfolio companies to maintain high growth, which is why we do not make any major changes. Considering that parts of the increase in the total costs are of a non-recurring nature, we view positively that EPTI has developed with good cost consciousness.

At the end of Q4-21, investable capital amounted to approximately SEK 58.3m, which can be compared with SEK 14.9m at the end of Q3-21. Analyst Group consider it positive that EPTI has increased its investable capital and we expect that the company will make more strategic acquisitions in 2022 to continue to create shareholder value. At the beginning of 2021, EPTI’s net asset value amounted to approximately SEK 484m and during the year the company had a total increase in value of SEK 352 million, in other words EPTI’s net asset value at the end of 2021 amounted to approximately SEK 836m, despite a write-down of Parkamo of SEK 58m. According to the company, the change in net asset value is mainly attributable to the portfolio companies completed capital raising, which Analyst Group considers to be positive given that the market has valued the portfolio companies, which reflects that the portfolio companies have made operational progress. Based on EPTI’s market cap (2022-02-23) of SEK 524m, the company is traded at a discount of approximately 37%, which we believe is not justified given that the company has historically managed to deliver a Compound Annual Growth Rate (CAGR) in net asset value of 108% (2017-2021), partly taking into account 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 value invites an attractive investment opportunity with a good risk-reward.

Our view of the company’s recent events

During the start of 2022, EPTI announced that the majority-owned (50% ownership) portfolio company Apotekamo has completed the acquisition of a locally licensed pharmacy in Bosnia, making Apotekamo a licensed reseller for all products through its platform and through its physical pharmacy. The license gives Apotakamo exposure to the Bosnian market and its 3.2m inhabitants, which Analyst Group sees as a great value driver. During Q4-21, Apotekamo delivered a growth of 186% in the number of orders online compared to Q3-21, while the number of visitors to the company’s website increased from 40,000 visitors per month to 100,000 visitors per month for the full year 2021, corresponding to an increase of 150%. Through Apotakamo’s acquisition, the consolidated net sales of pro forma 2021 amounted to approximately SEK 6.6 million, which based on the company’s latest valuation corresponds to a P/S multiple of ~ 13.8x, which is assumed to reflect an expectation of accelerating growth.

Just a few weeks ago, EPTI announced that its’ subsidiary Parkamo GmbH has filed an application for bankruptcy with the German General Court, Amtsgericht. The decision follows the ruling in the Patent and Market Court that was announced through a release on January 27, 2022 and aims to best protect the interests of Parkamo’s shareholders. Considering that EPTI controls 59% of the votes in Parkamo, and that the portfolio company’s most recent valuation amounted to approximately SEK 91 million, this has a negative effect on EPTI’s net asset value of approximately 7%. We are of course surprised by the outcome of the Patent and Market Court, which led to Parkamo deciding to file for bankruptcy. Like what we communicated in the previous analysis, we have seen Parkamo as an extra interesting subsidiary in EPTI’s portfolio, and we have seen great opportunities for Parkamo to capitalize on the fragmented parking market to eventually be one of the portfolio companies driving up EPTI’s net asset value. With that said, we are positive that EPTI intends to continue investing in the area of ​​mobility and parking by acquiring a significant majority of the PaaS company Linky Tech.

Regarding EPTI’s increased net asset value, the investment in Linky Tech and Moblrn which after the capital raising will increase the company’s net asset value further to a total of SEK ~911m, and considering the write-down in Parkamo, we will review the valuation in EPTI.

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