Fundamental View

The Allgon group is a Swedish company group consisting of Åkerströms, Smarteq, Tele Radio, Wireless System Integration, Satmission and Allgon Supply. The group's niche companies develop and sell industrial IoT-solutions, digital communication systems, cloud-based infrastructure and wireless solutions for demanding environments. The global customer base is found within the industrial, automotive, mobile- and telecom, transportation, construction and broadcasting sectors.

Last updated: 2018-08-15 Source: Redeye

The Allgon group offers products within the segments of antennas, industrial radio control, and industrial IoT. Antennas (Smarteq) are supplied to industrial actors within automotive, M2M and consumers. Satmission provides mobile satellite solutions to companies within the media industry and governmental organizations. Åkerströms and Tele Radio is developing applications for radio control of industrial machines. WSI is active within the industrial IoT segment, developing smart products for applications in industry and advanced radio.

Last updated: 2018-08-15 Source: Redeye

The market for wireless industry solutions is estimated to experience significant growth. Allgon is well positioned to take advantage of this growth. Interesting opportunities arise in the digitalization of the industrial processes, but also in smart energy meters and infrastructure of electrical automotives. The companies largest business segment is industrial remote control, in which the company is believed to have a market share around 7-8% given the estimated market size about SEK 5bn.

Last updated: 2018-08-15 Source: Redeye

  • Strong position within industrial remote control: The acquisition of Tele Radio will establish Allgon as one of the leading companies within the market for industrial remote control and further give a substantial boost to the company's revenues and profitability.
  • The market for wireless industrial solutions predicted to grow rapidly: All of Allgon's business segments are expected to grow with the large emerging opportunities.
  • Room for additional upside: Our DCF-valuation suggests a fair value of SEK 7.8 per share, indicating that there is additional upside from the current share price.

Positioned as one of the leading actors within the market for industrial remote control. Through the acquisition of Tele Radio, Allgon has established itself as one of the leading actors within the industrial remote control market. Tele Radio has historically been the most attractive Swedish company within the segment in terms of growth and profitability. During the latest four years, Tele Radio has reported an average sales growth of 13% and an operating margin around 16%. Allgon's future revenues are now expected to exceed SEK 0.5bn while also showing a substantially increased profitability. 

We have earlier pointed out that Allgon seems to have succeeded with its turnaround in Åkerströms. During the latest year, the company has shown its ability to increase both sales and profitability. The implemented measures taken during 2016 and 2017 has led to an EBITDA-margin around 12-14%. The acquisition of Tele Radio implies that the industrial remote control segment will account for a substantial part of Allgon's revenues going forward. We have a positive view of the acquisition of Tele Radio, which means that Allgon will have two strong industry brands with large customer bases and high repurchase frequencies. We expect the segment to continue showing strong growth (about 11%) during the coming three years while exhibiting an EBITDA-margin in the range of 18-19%. 

The market for wireless industrial solutions predicted to grow rapidly. Allgon is well positioned to benefit from this expansion. Interesting areas include smart metering, infrastructure for electric cars, and the ongoing digitalization of industry, with more and more machines and processes being connected. We especially see growth opportunities within industrial IoT, where WSI and IIOX have strong offerings. 

Room for additional upside. Although the share price has increased steadily since the acquisition of Tele Radio was completed, we see room for additional upside from the current levels. Our DCF-valuation results in a fair value of SEK 7,3 per share, indicating a potential upside over 10%. We find this reasonable given Tele Radio's history of growth and profitability, the turnaround in Åkerströms and the groups continued growth opportunities. 

Potential risks (bear-points)

  • Largest business segment affected by cyclicality. Post-consolidation of Tele Radio, the industrial remote control segment is expected to account for about 80% of the group's future revenues. There is thus a risk that the company will be negatively affected in periods of economic downturn given its large industrial customer base.
  • Acquisitions do not always turn out as expected. Acquisitions of new companies are not easy and things seldom turn out exactly as planned. Even if the companies are operated with high degrees of autonomy, they are to be included in the Allgon group. This is especially relevant for Tele Radio, a large company to be consolidated 
  • Increase profitability in all segments. Allgon recently returned to show positive earnings. Although Tele Radio will have a significant positive impact on the group's profitability, we find it important that Allgon succeeds to increase revenues and profitability in the other segments (connectivity and industrial IoT), which currently are affecting the group's profitability negatively. 

Last updated: 2018-09-09 Source: Redeye