Description

I recommend buying shares of ADDvise Group AB (ADDVB SS). Shares currently trade at ~6.5x EV/PF 2022 EBITDA of ~200mn SEK (~$20mn USD), and this compares favorably to FY 2021’s reported ~60mn SEK (~$6mn USD) EBITDA. This showcases the company >300% EBITDA growth in <2 years despite having no sell-side coverage and limited/no press. Moreover, mgmt just boosted its FY ’22 PF EBITDA to 200mn SEK from 150mn SEK (~33% boost) just 2 weeks ago. On the news the shares rallied ~20% but have since drifted back to pre-guidance boost levels.

While public market roll up stories have recently come under pressure, given rising rates, I believe Addvise has the recipe for sustainable long term value creation given its recession organic growth, its large TAM of cheap Medtech M&A targets, its high level of decentralization/low execution risk, as well as its highly repeatable and systematic capital allocation policy. This should be complimented by an increasing valuation multiple driven by increasing share liquidity and institutional coverage.

The Company has recently seen an explosion in growth, margins and M&A capabilities and I believe the company is on the verge of picking up proper instituitional coverage which should help drive shares towards my $14.00 base case, providing ~120% upside over the next 12 months. Moreover I believe this could be a $1 billion market cap in a few years (a 10xer!!).

Simplistically it’s a VERY early stage Danaher (DHR) or Thermo Fisher (TMO), where they have a programmatic MedTech M&A playbook. As of now ~50% of revs are from Sweden with 25% in both US/EU. However, the US continues to be the source of new growth and should continue to increase in proportion. Moreover, ~60% of revs comes from consumables which leads to a high level of sustainability and recession resistance.

The company was originally an orphaned security with a Lab equipment business. However, the current ADDvise mgmt took over the public equity shell and started to roll out a methodical consolidation strategy in MedTech just a few years ago. The team systematically seeks to exploit public/private valuation arbitrage where they can acquire good profitable private MedTech businesses at 5-7x EV/EBITDA, introduce optimizations/synergies, while keeping the entrepreneurial culture intact. As the company acquires more assets they are creating a more balanced portfolio with significant synergies leading to faster growth, higher margins and improved diversification of geographies/products, which along with increased sell-side coverage and trading liquidity, should culminate in a structural re-valuation in Addvise shares to 15-20x EV/EBITDA (in-line with small/mid cap peers).

The CEO owns ~6%. Chairman owns ~19% and the CEO has been actively buying shares in the open market. This is owner/operator mentality that you like to see. The company has only pursued its Platform Build up strategy for a few years but results are very strong. Mgmt has already achieved its FY ’22 targets (>1bn SEK revs, >150mn SEK EBITDA) announced in September 2021 in just ~6 months including deals that have been announced, but not yet closed. Moreover, Addvise PF ND/EBITDA is below 3x target so accretive M&A should continue.

In 2H 2021, Addvise also boosted its annual mid-term targets: ~25% annual rev growth (~20% prev) and ~20% EBITDA margin (~15% prev), but I expect growth to be 2x this rate over the next few upcoming years.

Once its existing pipeline of deals closed in Q2 2021, the BoD reviewed its targets and re-set them ~33% higher just 2 weeks ago....which means shares are now ~30% cheaper on new PF '22 EBITDA targets 

Organic growth is also accelerating. Q4 ’21 revs were +60% y/y (FY ’21 +30% y/y) while Q4 '21 organic growth was +13% y/y (FY '21 +5% y/y) as the amount of elective surgeries starts to normalize, which should be a nice tailwind vs its low/mid-single organic growth targets. Also, Q4 ’21 organic order intake was 2x organic growth, pointing to nice pent up demand tailwinds and an organic revenue growth acceleration in 1H 2022.

On top of this EBITDA margins continue to leap higher driven by increased economies of scale, synergies, and most importantly through the acquisition of higher margin/quality assets. FY ’21 EBITDA margin was 12.2% but PF EBITDA margins including M&A that hasn’t closed should be >17% EBITDA margin. This is a stark improvement from high-single digit EBITDA margin levels just a few years ago. Part of this also comes from their strategic approach towards owning more proprietary branded products which have 55% gross margins vs. ~30% for more distribution-like revenues streams.

Also, the company is managed in a very decentralized manner, which is highly predictive of success in this Framework. All BUs have their own targets with bonuses tied 50% to ROIC, 25% EBITDA growth, 25% budgeted growth.

The reason the stock has just started to re-rate higher is because they are just starting to become more institutional and transparent. In 2021, they did a bond offering and in Sept 2021 its first equity offering (~$125mn SEK), which was oversubscribed by 10x. In March 2022, they did another $100mn SEK equity offering as they look to widen its shareholder base and secure capital for growth.

Prior to 2021, the company had to live within its existing cash flows, which limited scalability and growth, but now access to capital and its cost should continue to come down. The company has also applied for a Nasdaq uplisting (main exchange) and it’s been approved. This main market listing should happen in 2022 or 2023 and when this occurs its liquidity, sell side coverage and brand recognition should start to benefit. As of now only one local boutique, covers Addvise but this should change.

Most mid/large-cap serial acquirers with +LSD/MSD organic growth, >15% EBITDA margins and similar playbooks trade at ~25-30x EBITDA, while the smaller ones trades at a~ 15-20x EBITDA. As ADDvise's business scales and its share liquidity improves patient investors will be rewarded with a much higher valuation on much higher EBITDA.

Catalyst

Strong Q1 2021 organic growth/margins

Reaching >$200mn PF EBITDA in 22

Future M&A

New '23 revenue/ebitfa targets

Listing on main Sweden stock exchange

New/addl Sell-side research coverage