Gasporox: Executing its long-term strategy

Research Update

2024-04-23

13:14

Analyst Q&A

Closed

Rasmus Jacobsson answered 4 questions.

Gasporox’s results closely align with RRe expectations, showing seven quarters of positive EBITDA driven by sales from VialArch, GPX1500, and after-sales services. The company is preparing to launch a new version of VialArch in June and is already securing pre-orders from the pharma and beverage sectors. The upcoming debt maturity might pressure the share, while forthcoming earnings and order announcements could boost it.

Rasmus Jacobsson

Martin Wahlström

Contents

Investment thesis

Quality Rating

Financials

Rating definitions

The team

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Seven quarters of positive EBITDA

Net sales for Gasporox reached SEK8.7m, down 5% y/y but close to RRe’s SEK8.2m estimate, driven by VialArch (likely including the MaxCann order), GPX1500 Vial, and after-sales. EBITDA was SEK1.4m with a margin of 16%, in line with the RRe of SEK1.3m, despite higher OPEX offsetting sales gains. Gasporox continues its trend towards profitability, marking seven consecutive quarters of positive EBITDA, albeit with minor losses when adjusting for capitalized R&D.

Product launches and debt management

Gasporox plans to launch VialArch H₂0 at ACHEMA in June, designed to measure pressure through water steam, with pre-launch orders from the pharma and beverage sectors. The company faces potential liquidity pressure from a SEK5.5m (excl. accumulated PIK interest) convertible loan maturing in autumn 2024 if the share falls below the SEK8.5 conversion price. However, major stakeholders seem inclined to increase equity. Gasporox has contingency plans to settle the debt in cash. Although no specifics were disclosed, we speculate it could be done via a refinancing. The AGM will vote on an incentive package to the CEO, including issuing convertible debt of SEK0.8m (interest rate of 3%, conversion price SEK16.15), which, if approved, will boost liquidity. Gasporox had SEK10.4m in cash and SEK12.8m in working capital as of Q1 2024.

Reiterate our fair value range of SEK9-36 with a base case of SEK18.

The report aligned with our expectations, and we maintain our estimates. We expect 2024e to be lackluster in growth due to the strong 2023 (“only” 15% y/y on RRe). Gasporox trades at a 35-55% discount to peers on EV/S (1.4-2.6x) while on a 10-80% premium on EV/EBITDA 20224e-2026e (11.3-26.1x). We reiterate our fair value range of SEK9-36 with a base case of SEK18. The upcoming debt maturity might pressure the share, while forthcoming earnings and order announcements could boost it.

Key financials

SEKm	2022	2023	2024e	2025e	2026e
Net Sales	21.4	31.4	36.3	48.9	66.1
Sales Growth	36.3%	46.5%	15.4%	35.0%	35.0%
EBITDA	-0.90	3.6	4.8	8.5	19.6
EBIT	-4.2	-0.58	-0.45	2.3	12.6
EBIT Margin	-19.7%	-1.8%	-1.2%	4.7%	19.1%
Net Income	-4.4	-1.2	-1.2	1.8	10.0
EV/Sales	4.1	3.9	2.6	1.9	1.3
EV/EBIT	-21.0	-215	-210	40.9	6.9

Investment thesis

Case

High incremental return

Gasporox is changing the market for quality assurance and testing in headspace analysis (HSA) and modified atmosphere packaging (MAP), moving away from the often destructive sample-based and manual tests (known as at-line tests) and toward testing all products directly on the production line in a non-destructive manner (known as in-line tests). Given the existing core technology, the economics of incremental products (i.e., line extensions) should be excellent. However, because the company is still developing its distribution and sales channels, we believe this is not yet fully transparent. We believe that once these are in place, Gasporox will achieve high returns on incremental capital, similar to what Colgate-Palmolive, Coca-Cola, Unilever, and Nestlé have done in their respective industries.

Evidence

Robust growth and customer interest

Over the last five years, the company's revenue has increased by 47% (or a 66% CAGR excluding the pandemic years of 2020-2021). The company's sales and support teams' productivity has increased as a result of a simplified offering, with installations now possible via over-the-phone support rather than physical presence. Furthermore, end-users have begun to request that the product be installed by themselves rather than by a typical machine integrator, demonstrating the simplicity of Gasporox's offering, which should allow for rapid scalability.

Supportive Analysis

Although Gasporox's in-line testing solution requires three to twelve times the number of sensors as an at-line test, and each sensor costs about twice as much, increasing investment costs by six to twenty-four times, customers still find Gasporox's value proposition compelling. Furthermore, the total cost of a machine with integrated sensors may be 50 to 100 times that of the at-line option, and yet end customers continue to purchase the offering. Gasporox is still unprofitable, but its gross profit to asset ratio has steadily improved since going public, rising from 3% in 2016 to 52% TTM Q3'22. This implies increased profitability and a high return on invested capital is possible. We expect EBIT break-even in 2022.

Challenge

Biting off More Than it Can Chew

Gasporox is a small company with only a few employees. The company targets pharma, food, and beverages. Gasporox may overextend itself in the food and beverage markets, despite their potential. For instance, a few years ago, it had one salesperson (two if you counted the CEO) handling global pharmaceutical and food sales. Gasporox has added sales heads for pharma and food, but its size may cause it to lose focus. If necessary, the company can pivot into an end-segment to succeed.

Challenge

Untested Expansion

Since 2016, Gasporox has focused on pharmaceutical growth. It wants to expand into food. However, execution remains critical, and in some markets, such as the United Kingdom, where supermarkets typically drive which packaging formats are used, there is a trend toward skin packs and vacuum packaging, where Gasporox may not be able to provide as much value. If vacuum packaging becomes mainstream, Gasporox may switch to other leak inspection methods. Vacuum only works on durable products, so pre-made meals and salads will always need MAP. Last, a successful food market expansion is not necessary for the Gasporox investment case, but it makes the difference between a good and a great investment.

Valuation

Growth Runway Not Priced In

We value Gasporox on the back of three difference DCF-scenarios. Our fair value range is SEK9-36 per share with a Base Case of SEK18. We use a discount rate of 11% based on Redeye’s rating model.

Quality Rating

People: 4

CEO Märta Lewander Xu, who joined Gasporox in 2011, has a Ph.D. in laser absorption spectroscopy of gas in scattering media. Her technical background aids Gasporox's application. The board is well-balanced and most large shareholders are active board members. We are encouraged by management's increased ownership.

Business: 3

Strategic partnerships and an asset-light business model earn three points for the Company. Gasporox also has a strong customer value proposition and a long growth runway. Last, we expect this score to rise as we learn more about Gasporox's expansion in the food and beverage sectors and as its installed base grows and its aftermarket services generate more recurring revenues.

Financials: 2

Gasporox has seen strong revenue growth since its IPO and has a fantastic gross margin that exceeds 70%. The company loses points because it's still unprofitable. We expect this score to rise as the Company becomes profitable.

Financials

Income statement
SEKm	2023	2024e	2025e
Revenues	40.6	44.1	54.9
Cost of Revenue	6.6	7.3	12.2
Operating Expenses	34.6	37.3	40.4
EBITDA	3.6	4.8	8.5
Depreciation	0.57	0.56	0.77
Amortizations	3.7	4.8	5.4
EBIT	-0.58	-0.45	2.3
Shares in Associates	0.00	0.00	0.00
Interest Expenses	-0.80	-0.78	0.00
Net Financial Items	-0.67	-0.78	0.00
EBT	-1.2	-1.2	2.3
Income Tax Expenses	0.00	0.00	0.49
Net Income	-1.2	-1.2	1.8
Balance sheet
Assets
Non-current assets
SEKm	2023	2024e	2025e
Property, Plant and Equipment (Net)	1.6	2.1	2.8
Goodwill	0.00	0.00	0.00
Intangible Assets	19.4	20.6	21.2
Right-of-Use Assets	0.00	0.00	0.00
Other Non-Current Assets	0.00	0.00	0.00
Total Non-Current Assets	20.9	22.7	24.0
Current assets
SEKm	2023	2024e	2025e
Inventories	5.4	4.6	7.7
Accounts Receivable	4.4	7.4	10.1
Other Current Assets	2.2	4.4	5.9
Cash Equivalents	10.6	1.2	0.64
Total Current Assets	22.6	17.6	24.3
Total Assets	43.5	40.2	48.3
Equity and Liabilities
Equity
SEKm	2023	2024e	2025e
Non Controlling Interest	0.00	0.00	0.00
Shareholder's Equity	23.2	22.0	23.8
Non-current liabilities
SEKm	2023	2024e	2025e
Long Term Debt	2.0	2.0	2.0
Long Term Lease Liabilities	0.00	0.00	0.00
Other Long Term Liabilities	0.79	0.79	0.79
Total Non-Current Liabilities	2.8	2.8	2.8
Current liabilities
SEKm	2023	2024e	2025e
Short Term Debt	6.7	0.00	0.00
Short Term Lease Liabilities	0.00	0.00	0.00
Accounts Payable	1.7	2.4	4.0
Other Current Liabilities	0.57	13.1	17.6
Total Current Liabilities	17.5	15.4	21.6
Total Liabilities and Equity	43.5	40.2	48.3
Cash flow
SEKm	2023	2024e	2025e
Operating Cash Flow	3.3	-2.3	6.9
Investing Cash Flow	-7.0	-7.1	-7.5
Financing Cash Flow	-0.24	0.00	0.00

Rating definitions

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Contents

Investment thesis

Quality Rating

Financials

Rating definitions

The team

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