Redeye updates on Northbaze following Q4 results, which were weaker than expected on the topline but in line with our EBITDA forecasts. With the acquisition of Skalhuset last December, Redeye anticipates an exciting 2024 for Northbaze. The company's outlook remains uncertain due to persistent challenges in the market, leading to adjustments in our estimates and a downward revision of the valuation range

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Northbaze

* Northbaze operates in highly competitive markets with numerous players, particularly in mobile accessories and refurbished electronics, making it difficult to establish a dominant market position.
* The company's revenue is relatively concentrated within specific product categories and regions, particularly the Nordic market, limiting diversification and increasing vulnerability to market-specific risks.
* Northbaze has not demonstrated consistent returns on invested capital exceeding the cost of capital, indicating challenges in maintaining sustainable profitability.
* The company's competitive advantages, such as product innovation and sustainability focus, may not be sufficiently robust to ensure a lasting moat over decades in dynamic markets.

* Northbaze operates in markets benefiting from secular trends such as sustainability, e-commerce growth, and increased demand for refurbished electronics, supporting long-term growth potential.
* The company has an asset-light model, leveraging centralized production and strategic partnerships to scale operations efficiently without significant reinvestment.
* Northbaze demonstrates a strong commitment to sustainability, focusing on environmentally friendly products and practices, which contributes positively to its brand image and market positioning.
* The company collaborates closely with B2B partners and customers to develop tailored solutions, showcasing customer-driven innovation and adaptability.

* Weak historical growth, with stock price, revenue, and earnings growth falling below desired thresholds.
* Inconsistent earnings quality, with issues in inventory management and operating cash flow conversion.
* Lack of dividend power, with no current dividend payments or history of consistent dividend growth.
* Potential financial instability, as indicated by negative answers to multiple profitability and growth questions.

* Strong short-term liquidity with current assets 1.5 times greater than current liabilities, indicating robust working capital management.
* Healthy debt management, with Net Debt less than two times Operating Cash Flow and five times Free Cash Flow.
* Solid interest coverage ratio, with earnings (EBIT) covering interest on debt more than five times.
* Low financial leverage, as evidenced by a Debt to Equity ratio below 40%.
* Efficient accounts receivable management, with accounts receivable to sales below 20% and its 5-year average.

* Lack of consistent high returns on invested capital, with profitability still under development despite recent strategic initiatives.
* No established track record of dividend payouts, reflecting focus on reinvesting earnings rather than providing immediate shareholder returns.
* Limited evidence of sustainability-related performance metrics tied to executive compensation, potentially undermining focus on ESG goals.
* Insufficient information on gender diversity efforts in leadership, suggesting potential missed opportunities in leveraging diverse perspectives.

* Strong leadership with clear strategic vision, demonstrated by successful diversification through acquisitions and focus on sustainable growth.
* Commitment to innovation evident in diversified product portfolio and strategic acquisitions, positioning the company in growing markets like refurbished electronics.
* Transparent and consistent communication, focusing on long-term value creation through regular updates on strategic priorities and market developments.
* Balanced executive compensation structure without excessive perks, aligning management interests with shareholder value.
* Board composition aligns well with business strategy, demonstrating understanding of value creation process and industry expertise.

SEKm	2022	2023	2024e	2025e	2026e
Revenues	166.0	117.8	218.4	235.3	255.9
Revenue Growth	24.8%	-29.1%	85.5%	7.7%	8.8%
EBITDA	-0.79	-6.5	12.5	16.5	20.5
EBITDA Margin	-0.5%	-5.5%	5.7%	7.0%	8.0%
EBIT	-15.9	-34.0	-1.1	1.9	4.6
EBIT Margin	-9.6%	-28.9%	-0.5%	0.8%	1.8%
EV/Sales	0.9	0.7	0.3	0.3	0.2
EV/EBIT	-9.2	-2.5	-70.3	34.1	10.6
Net Income	-15.9	-41.1	-3.7	-1.4	0.80

Soft sales with EBITDA margin inline

Exciting 2024

Valuation

Key financials

Q4 2023