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ALLG B

Allgon

Fundamental View

The Allgon group is a Swedish group of companies offering wireless products and systems adapted for harsh and demanding environments. Allgon is focusing on global niche markets where customers place high demands on robust solutions. Allgon today has three operating segments, antennas (Smarteq Wireless and Satmission), industrial radio remote control (Åkerströms) and industrial IoT (WSI). In addition, Allgon Asia/Allgon Supply supports the other group companies in operational excellence and strategic sourcing. 

Last updated: 2017-05-08 Source: Redeye

The Allgon group offers products within the segments of antennas, industrial radio control and industrial IoT. Antennas are supplied to industrial actors within automotive, M2M and consumers. The recently acquired firm Satmission provides mobile satellite solutions to companies within the media industry and governmental organisations. Åkerströms 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: 2017-05-08 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 arises in the digitalization of the industrial processes, but also in smart energy meters and infrastructure of electrical automotives.

Last updated: 2017-03-24 Source: Redeye

  • The current share price implies rather low expecations of the company. We expect this to change as Allgon delivers on its strategic goals.
  • Increased profitability in all segments: Allgon has recently performed several activities in Åkerströms to increase the company's profitability. Togheter with the existing potential synergies, we see great opportunities for Allgon to increase the profitiability in all segments.
  • High potential upside: Our estimated fair value range of 10-27 SEK per share implies that there is a great potential upside given that Allgon delivers according to our expectations.

Allgon was a favorite stock for many retail investors in the late nineties. After numerous parts of the business were sold, what remained of Allgon on the Swedish stock exchange conducted relatively inconspicuous activities under the Smarteq brand. Success with its major customer Volvo AB turned to disappointment when Volvo chose to walk away from Smarteq’s antennas. The Allgon name is back, but now as a group of companies offering a broader portfolio of wireless communication solutions for industry and with a plan to grow aggressively. We argue that the market's expectations on Allgon are too low and we further argue that the market fails to see where Allgon is heading. We believe the market’s perception will change as the group starts to deliver on its objectives and intensifies its focus on market communications. The market for wireless industrial solutions is predicted to grow strongly, and 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.

There are also good opportunities for Allgon to strengthen its international presence. Chinese industry, in particular, is increasingly starting to move toward greater automation and more intense consideration of health and safety, where the Allgon group’s solutions are well positioned. In May 2015 Allgon acquired the aftermarket business of antenna manufacturer Kathrein, which, in addition to a number of products, gave Allgon access to a strong distribution network with great potential to also sell products other than those included in the acquisition of the aftermarket business.

Beginning of a growth journey

Allgon’s aim is to grow both organically and through acquisitions, and we see good opportunities for value-creating acquisitions as well as organic growth. Allgon is at an early stage of its growth journey, this gives investors an opportunity to take a position with a high potential upside, although associated with rather high risk. Of course there are plenty of challenges, and it takes hard work to successfully integrate acquisitions and to realize synergies. Allgon currently wants to acquire primarily companies with sales in the order of SEK 30-100 million. Minor acquisitions can often demand as much time and resources Allgon as larger ones, and given Allgon’s small organization it will have to be careful in choosing what acquisitions to make. Despite the challenges we see great opportunities for Allgon going forward. The company has a healthy outlook on how to work with acquisitions. The idea is to acquire companies that can benefit from the shared resources of the Allgon group in supply chain excellence as well as and in marketing, sales and distribution, while allowing them to retain a high degree of autonomy.

Attractive opportunity to invest
We see great opportunities for the existing companies to grow and improve their profitability. Not least, we believe the ongoing efforts to scale up international sales for both the antenna business and Åkerströms will lead to strong revenue growth. The recent acquisitions of WSI and Satmission will further bolster sales growth and add to the company's profitability. We believe Allgon’s intensified focus on enhancing profitability will improve earnings from 2017 and forward. The share is currently overlooked by the bulk of investors. We believe the market will discover Allgon in future, leading to a revaluation, and there are plenty of short-term and medium-term catalysts that could trigger this revaluation.

Challenges and potential risks

The greatest risk of an investment is that Allgon fails to deliver on expectations. We believe that the company's greatest challenge is to continue to generate sales growth while enhancing the profitability in all segments. To summarize, we find the following challenges for Allgon:

  • Efficiently integrate acquired companies in the group - Acquisitions of new companies are not easy as things seldom turns out exactly as planned. Even if the companies are operated with high degrees of autonomy, they are to be included in the Allgon group. We find it especially important to acquire companies that envisage clear advantages of being incorporated in the Allgon group.
  • Increase profitability in all segments – Allgon recently returned to show positive earnings. We believe that Allgon's challenge is to continue to increase the profitability in all segments.
  • Achieve organic sales growth in underlying companies – Even if Allgon has a strategy to grow through acquisitions, it is important to achieve organic sales growth in all companies belonging to the Allgon group. We find this especially important as there exist potential economies of scale in the underlying companies.

Last updated: 2017-05-24 Source: Redeye