Analyst Group Comments on EPTI’s Report for the Third Quarter of 2022

EPTI published, November 15th, its interim report for the third quarter of 2022. The following are some key events that we have chosen to highlight in connection with the report:

  • Net sales amounted to SEK 53.7m (22.9) – corresponding to a growth of 135%, of which 27% organic growth
  • Delivers positive EBITDA results two quarters in a row, which during the period amounted to SEK 4.8m, corresponding to an EBITDA margin of 9%
  • Net asset value (NAV) at the end of September 2022 amounted to SEK 715.6m (698.8), corresponding to an increase of 2% Q-Q, mainly attributable to a higher valuation of Apotekamo as a result of a financing round in August 2022

The Portfolio Companies Continues to Deliver Revenue Growth

During the third quarter of 2022, EPTI showed net sales of SEK 53.7m (22.9), which corresponds to a growth of 135% Y-Y, as well as a growth of 13% Q-Q. The positive revenue development is mainly attributable to the business area EPTI Service, which delivered a growth of 153% Y-Y, as well as a growth of 13% Q-Q. EPTI’s other business area, EPTI Invest, showed a negative growth of approx. 55% during the period, mainly as a result of the company having divested five holdings during the period, which are recorded as associated companies and are therefore not included in the consolidated accounts.

During the third quarter of 2022, EPTI continues to show strong growth, where organic growth, which Analyst Group considers to be an important metric for measuring the portfolio companies’ operational development, amounted to 27% during the period. In a market that continues to be characterized of restrained funds for raising capital, we see it as particularly important for the portfolio companies to be part of EPTI’s independent ecosystem, by taking part in operational support and a broad network of investors, in order to enable continued growth”, says Analyst Group.

Positive EBITDA Result

During Q3-22, the group’s operating expenses, excluding depreciation and amortization, amounted to SEK -46.8m (-51.1), which corresponds to a cost reduction of 8% Q-Q. The company’s cost consciousness, in combination with increased net sales, contributed to the EBITDA result increasing by 766% Q-Q and amounting to approximately SEK 4.8m during the period. With nine reported months behind, it is clear that the business area EPTI Service shows continued strong profitability, where the EBITDA result amounted to SEK 27.4m (19.3) during the first nine months, which corresponds to an EBITDA margin of approx. 22%. The EPTI Invest business area continues to invest in growth and product development, which has had a negative impact on the operating profit by SEK -11.0m (-7.5) during the first nine months. Worth noting is that EPTI, in connection with the Q3-report, has communicated that during the first half of 2023, it is the company’s assessment that all holdings in EPTI Invest will be associated companies s and or completely diverted (EXIT) and thus will not be consolidated into the Group’s results, which will reflect a more accurate picture of the Group’s true EBITDA results.

During Q3-22, the group’s cash flow from operating activities, after changes in working capital, amounted to approximately -1.3 MSEK/month. Given that EPTI would maintain the same burn rate in the coming months, as well as taking into account the company’s cash position of SEK 4.2m at the end of September 2022, current operational activities would be financed until the end of Q4-22, all else equal. However, EPTI has an overdraft where the company has approximately SEK 6.6m left to use, which together with outgoing cash sums the group’s liquid assets to approximately SEK 10.8m at the end of Q3-22. Having said that, Analyst Group believes that current liquid assets won’t be sufficient to both finance the company’s operational activities and execute on acquisitions of cash flow positive service companies, in accordance with EPTI’s strategy. Therefore, we deem it likely that EPTI, in combination with optimizing the investment portfolio through disposals within EPTI Invest, also are in need of external capital in the form of either debt financing or equity issuance.

Increased Net Asset Value as a Result of a Higher Valuation in Apotekamo

At the end of June 2022, EPTI’s NAV amounted to approximately SEK 699m and during the third quarter of 2022 the company has had a total value increase of SEK 16.8m, which means that EPTI’s NAV at the end of September 2022 amounted to approximately 716 MSEK. The change in NAV during the period is mainly attributable to EPTI’s portfolio company Apotekamo, which completed a financing round during the period of SEK 26.5m, corresponding to a pre-money valuation of SEK 152m, in which EPTI invested a total of SEK 5m. Analyst Group find it poositive that Apotekamo successfully completed a financing round, especially in today’s challenging climate for raising capital, which is an indication that the portfolio company is accelerating its development, which paves the way for continued value creation in the future. During the period, EPTI’s NAV has been negatively affected as a result of the company’s investable capital having decreased by SEK 19.7m compared to Q2-22, adjusted for this, EPTI’s NAV increased by approx. 5% Q-Q.

In conclusion, we stand positive in regards to that EPTI delivers a Q3 report with strong organic growth with a rising profitability. Considering the company’s market cap of approximately SEK 223m, and that the NAV at the end of September 2022 amounted to SEK 716m, EPTI is trading at a discount of approximately 69%. Given that EPTI would be acquired at the current market value, the business area EPTI Service would be valued to an EBITDA multiple of approx. 8x, and the remaining portfolio companies within EPTI Invest would be acquired for free. Thus, Analyst Group believes that the current market cap continues to invite to an attractive investment opportunity with great risk-reward.