Avtech Sweden

TagMaster

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OXE Marine

* Currently unprofitable with negative cash flow, indicating financial challenges and potential need for future capital infusion.
* Heavy reliance on a single product (300hp engine) for majority of sales, suggesting lack of revenue diversification.
* Dependent on capital markets for potential future funding, despite recent debt restructuring and capital injection providing short-term financial stability.
* Limited recurring revenue stream, with parts and accessories accounting for less than 50% of total revenues.
* Uncertain industry-wide profitability metrics, making it difficult to assess long-term return on invested capital (ROIC) potential compared to industry standards.

* Strong market position in diesel outboards with unique belt drive technology, offering fuel efficiency and longer lifespan compared to gasoline engines.
* Diverse geographic presence across five continents, indicating successful expansion and adaptability to different markets.
* Products align with environmental sustainability trends, offering lower fuel consumption and reduced CO2 emissions, with potential for biofuel use.
* Close collaboration with customers for innovation, leading to follow-up orders from demanding governmental clients and validating product quality.
* Stable industry with high barriers to entry, dominated by a few major players, suggesting limited disruption risk and potential for long-term growth.

* So far earnings and cash flows have been consistently in negative territory.
* Stock price has not compounded by at least 10% since IPO, potentially indicating underperformance or overvaluation at IPO.

* Revenue growth consistently outperformed industry average over the last five years, suggesting market share gains and competitive strength.
* Current Assets are 1.5 times greater than Current Liabilities, demonstrating strong short-term liquidity and financial health.
* Cash and short-term investments cover expected cash burn for more than two years, signaling financial stability and reduced need for immediate fundraising.

* Limited CEO experience within the company and industry, potentially impacting long-term strategic planning and execution.
* Weak commitment to sustainability reporting, indicating potential gaps in addressing environmental, social, and governance (ESG) concerns.
* Lack of gender diversity in leadership, with no women on the Board of Directors or in management positions.
* Limited management ownership stakes, suggesting potential misalignment between management and shareholder interests.
* Absence of a clear, well-communicated strategic plan, which may hinder investor understanding of the company's long-term direction.

* Strong CEO leadership with clear vision, industry knowledge, and commitment to innovation, evidenced by developments like diesel-electric hybrid engines.
* Lean, decentralized organization promoting accountability and efficiency, with a focus on customer needs and operational improvements.
* Transparent and balanced communication from management, including candid discussions of setbacks and a focus on long-term business value.
* Reasonable executive compensation practices, with no excessive perks or exit payments.
* Significant insider ownership, with two out of three board members holding substantial stakes in the company.

<img loading="lazy" class="alignnone wp-image-860522" src="https://res.cloudinary.com/redeye/w_564,h_413,c_fill,dpr_2.0/cms/app/uploads/2022/10/oxeq3.png" alt="" width="564" height="413" />
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Q3 highlights:
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<ul>
<li>Net sales of SEK39m were 49% higher Y/Y but lower Q/Q. We expected a bit more and judging from the comments in the report, so did OXE. July and August were very slow, impacted by vacations and disturbances in the supply chain. September was better and the situation is now back to “business as usual”.</li>
<li>Parts &amp; Accessories showed surprisingly strong sales numbers of SEK9.5m. The first delivery of C-CRES was made to a US governmental organization in Q3. C-CRES is OXE Marines’ containerized and trademarked life cycle support concept. We don’t know the order value of this deal, but it obviously had a positive impact.</li>
<li>Gross margins were also higher than expected. To some extent supported by the sales mix (P&amp;A making up for a larger share of sales). Gross margins should improve further in Q4, all else being equal. The acquired US stock had a higher book value which has weighed on gross margins up until now. The company stated earlier that this stock will be depleted by the end of Q3.</li>
<li>Opex are well contained and slightly lower than we anticipated. During Q3, OXE made further cost reductions which have not yet fully taken effect. Operating loss (EBIT) of 17m is lower than our estimate. The P&amp;L includes “Other operating income” of SEK3m, which explains the deviation. We believe this is currency gains.</li>
<li>Operating cash flow of only minus SEK2.7m was encouraging given the circumstances. Change in inventory contributed with SEK9m. Inventories are still quite substantial: SEK151m.</li>
<li>To summarize, we think Q3 was a bit of a mixed bag. Certainly, some bright spots and we remain confident that the company is on the right path. However, our near-term expectations for top-line growth have probably been a bit too high. We will return shortly with updated forecasts and valuation.</li>
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