In this equity research report, analysts Anders Åkerblom and Ludwig Lindau take a closer look at the Swedish consumer science company, Nepa (NEPA). The Company’s recent investments in their software capabilities is expected to increasingly drive sales and ARR, thus resulting in higher margins. The analysts estimate an EBITDA-margin of 23.1% in 2023E, compared to 16.6% in 2021A, and project a revenue CAGR of 11.2% for the same period. Based on a weighted peer valuation, a target multiple of 2.1x EV/S is justified, motivating an upside of 42.0% and a share price of SEK 109.1.
Investment highlights:
- Software investments and a greater reliance on the technical platform is expected to increasingly drive sales.
- Economies of scale advantages resulting in decreasing COGS and OPEX bodes well for forthcoming margin expansion and improved profitability.
- The Company is currently vastly undervalued to peers, trading at 1.4x EV/S compared to SaaS-peer average of 2.8x and consulting-peer average of 1.7x.
