Redeye retains its positive view of Vertiseit following a directed share issue. The discount was limited, and the issue brought in new solid institutional investors. Also, we assume Vertiseit has a solid pipeline of potential acquisitions to make use of the strengthened balance sheet.

Early this morning, Vertiseit announced a directed new share issue, adding about SEK71.8m before costs. The transaction had a subscription price of SEK40, corresponding to a 2.7% discount compared to yesterday’s closing price. The issue results in a dilution of about 7.8%. The issue primarily targeted institutional investors and included new investors, such as Andra AP-fonden, Bonnier Capital, NEA Partners, and existing investors like Alcur Fonder, Grenspecialisten, KL Capital, and Nordea Fonder.

In conjunction with the directed new share issue, management, including CEO Johan Lind and CFO Jonas Lagerqvist, has sold about 10% of their holdings. Also, some other employees have sold shares related to the exercise of warrants for the incentive program.

We take a positive stance towards the directed share issue for several reasons. However, to draw final conclusions about the share issue, we must wait for Vertiseit to allocate the capital. We expect acquisitions, but whether that will happen next week or in a year is hard to say.

We are encouraged to see the limited discount of 2.7%, which is at the very low end of what we typically see in companies of Vertisiet’s size. Also, we like to see several reputable institutional investors, both new and current owners, participating in the share issue. Interestingly, management points out the importance of the new investors for the company’s long-term growth ambitions. Furthermore, considering Vertiseit’s well-defined acquisition strategy, we believe it makes sense to strengthen the balance sheet when the valuation is reasonably fair (our Base Case is SEK50 and was raised from 42 in our Q1 Update) and to a low discount.

The 2-day Digital Signage Summit Europe in Munich starts today and should feature participants from most potentially interesting acquisition targets. While likely a conicidence, Vertiseit will enter any potential dialogue regarding M&amp;A with a significantly stronger balance sheet. We expect the net debt to drop to SEK10-15m in Q2 and Vertiseit to become net cash positive by the end of 2024. Assuming a relatively modest 2x EBITDA 2024e leverage leaves about SEK165m in financial firepower.

Vertiseit

* Operates in a highly fragmented market with numerous competitors, potentially limiting market dominance and pricing power.
* Revenue base is not widely diversified, with sales heavily concentrated in Grassfish, Visual Art, and Dise offerings.
* The software industry's median 10-year ROIC is below 15%, indicating potential challenges in sustaining high profitability across the sector.
* While showing promise, it's too early to conclusively state that Vertiseit's competitive advantage will last for decades.
* Despite global presence, most sales are generated in the Nordics and DACH regions, indicating room for geographic diversification.

* Strong recurring revenue model with over 50% of sales from SaaS, indicating business stability and scalability potential.
* Well-positioned to benefit from secular tailwinds in retail digitalization and omnichannel integration, with significant growth opportunities in underserved markets.
* Demonstrates pricing power and customer stickiness, evidenced by consistent price increases above inflation without significant churn.
* Proactively promotes environmental sustainability through initiatives that reduce returns and freight in retail, contributing positively to the industry's ecological footprint.
* Maintains strong customer and partner relationships, fostering innovation and product development through close collaboration.

* Operating margin (EBIT) below 20%, suggesting potential challenges in maintaining high profitability levels.
* Return on Equity (ROE) below 20% for the last five years, indicating possible inefficiencies in utilizing shareholder capital.
* Inconsistent earnings growth, failing to maintain a 10% annual increase over the last five years and lacking stability over a 10-year period.
* Weak dividend performance, with no consistent growth or payments, potentially limiting appeal to income-focused investors.

* Strong gross profit margin (>40%) and consistent operating margin growth indicate pricing power and improving operational efficiency.
* Revenue growth consistently above industry average for the past five years, signaling market share gains and competitive strength.
* Robust short-term liquidity with current assets 1.5 times greater than current liabilities, demonstrating strong financial health.
* Healthy debt management, with net debt less than two times operating cash flow and five times free cash flow.
* Efficient inventory and accounts receivable management, both below 20% of sales and their respective 5-year averages.

* Potential governance concern with the CEO attending all board meetings, which may limit independent oversight and evaluation of CEO performance.
* Recent insider selling activity, though limited, could be perceived negatively by some investors.

* Strong founder-led leadership with CEO Johan Lind demonstrating long-term vision, industry expertise, and commitment to building a leading global software company in the Digital In-store Experience Management niche.
* Consistent execution of a software-centric strategy, challenging industry norms and delivering solid organic growth and profitability, with management adapting to challenges and delivering on promises.
* High insider ownership, with management and board members holding significant stakes, aligning their interests with shareholders and demonstrating confidence in the company's future.
* Transparent and candid communication with investors, providing comprehensive reports, hosting earnings calls, and maintaining consistent messaging focused on long-term value creation.
* Diverse and experienced board of directors with relevant expertise in retail, technology, and finance, supporting the company's strategic direction and value creation process.

The Transaction in Short

Our View