Redeye takes a positive stance towards the acquisition of Visual Art. While the price is fair rather than cheap, Visual Art is a well-known, high-quality brand in the industry with the potential to further accelerate Vertiseit’s growth and strengthen its market position.

Yesterday, Vertiseit announced the acquisition of Visual Art. Vertiseit pays SEK457m on an EV basis for the company, which generated SEK348m in sales with an adjusted EBITDA-CAPEX margin of 7.5% in 2023. The ARR was SEK75m at the end of Q2 2024, compared to SEK67m at the end of 2023 – implying a SEK4m growth per quarter.

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.

SEKm	2023	2024e	2025e	2026e	2027e
Revenues	361.8	447.6	786.6	850.2	919.4
Revenue Growth	14.5%	23.7%	75.7%	8.1%	8.1%
EBIT	28.1	66.1	95.1	142.6	182.3
EBIT Margin	8.1%	14.9%	12.2%	16.9%	19.9%
EV/Revenue	1.6	3.6	2.0	1.8	1.5
EV/EBIT	19.6	24.2	16.5	10.4	7.6
ARR	161	278	332	388	448
ARR Growth	16.7%	72.7%	19.4%	16.9%	15.5%
EBITDA - CAPEX	29.0	68.1	108.6	144.6	177.3
EBITDA - CAPEX Margin	8.3%	15.4%	13.9%	17.1%	19.4%
EV/ARR	3.4	5.8	4.7	3.8	3.1
EV/EBITDA - CAPEX	18.9	23.6	14.4	10.3	7.8
Net Debt	113.6	207.1	169.1	93.0	-7.4
NWC/R12mSales	4.4%	3.5%	3.5%	3.5%	3.5%

Key financials