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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), 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: 2017-02-24 Source: Redeye

Last updated: 2017-02-24 Source: Redeye

Last updated: 2017-02-24 Source: Redeye

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.

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 30-50 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.

We also 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, WSI and Åkerströms will lead to strong revenue growth. We believe Allgon’s intensified focus on marketing, and the measures being implemented to enhance profitability, will improve both earnings and sales 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.

Last updated: 2017-02-24 Source: Redeye