Q4 2023

Northbaze reached net sales of SEK35m, a y/y decline of -27%. It came in lower than our estimates of SEK42m. Gross profit came in at SEK12m, vs our est of SEK17m. Ebitda was SEK-2,7m, vs our estimate of SEK-2,9m, inline with our estimate.

All segments lost between -12% and -40% y/y.

Adiantes reached SEK18,4m in sales (SEK21m), with a y/y decline of -12%. Audio & Sound had sales of SEK6,6m (11m), y/y decline -40%. Mobility had sales of SEK10.4m (16.4m), y/y decline of -37%.

EBIT for the quarter was SEK-10m, resulting in an EBIT margin of -29% (-27% last year). Cashflow from operations amounted to SEK2,8m, resulting in a cash position of SEK11m at the end of the period.

Adiantes reached SEK18.4m in sales, y/y decline of 12%. Particular weak summer month hit sales in the quarter. However, according to the CEO, there was a strong inflow of orders from external customers at the end of the quarter.

Audio & Sound had sales of SEK6.6m, y/y decline of 40%. The Audio & Sound business segment is experiencing a decline due to a repositioning of its operations. The focus now primarily revolves around long-term contracts, where Northbaze designs and distributes private-label products for customers. The repositioning took longer than anticipated, and sales only commenced towards the end of the year. The segment was significantly impacted by weaker sales to Teknikmagasinet experienced during the fall. The recent declaration of bankruptcy by Teknikmagasinet on January 4, 2024, results in direct losses in inventory and accounts receivable, as well as a decrease in sales for the business segment

Mobility had sales of SEK10.4m, y/y decline of 37%. Demand from retail and B2B is still weak. The success of the launch of the iPhone 15 is essential for this category. However, higher inflation and an overall increase in living expenses continue to dampen the demand for new smartphones and accessories globally.

Northbaze reported COGS of SEK-23m, resulting in a gross margin of 36%, 5ppt lower than our estimate. Gross margin in the quarter was 35%, lower than our estimate of 40%, and the reason was increasing part of private label products and inventory clearance sale. As always, the margin will fluctuate over the quarters depending on the revenue growth, currency effect and transportation costs. It is also important to note that Northbaze’s product mix highly influences the gross margin.

OPEX came in better than our estimate, so management is doing a good job trimming costs.

For the quarter EBITDA was -8% and -6% for the full year 2023. With Skalhuset in combination with the lower cost base, we should expect a more stable and positive EBITDA margin during 2024. We estimate 4% in Q1 2024 and an improvement during the year to end at 6% for the full year.

Cashflow from operations amounted to SEK2.8m in the quarter, resulting in a cash position of SEK11m at the end of the period. According to our cash flow estimate, cash levels at the end of the year after the payout of the Copter earn-out and Skalhuset acquisition should be around SEK14m.

With the acquisition of Skalhuset last December, Redeye argues that 2024 will be an exciting year for Northbaze. In our note after the acquisition, we estimated Skalhuset to add sales of about SEK98m to the topline. In the latest Q4 report, the CEO says the acquisition will add SEK90m. We, therefore, trimmed down our sales estimate downward and made minor adjustments to the margins. We still believe the underlying market is tough, but Nortbaze is in much better shape regarding the slimed organization and cost-cutting programs in the bag. We estimate the NetDebt/EBITDA will be around 1.1 to 1.3x at the end of 2024.

Northbaze has set financial targets, including an annual growth rate of over 20%, and EBITDA of 10%, with solvency ratio exceeding 30%. We are not that optimistic. We trimmed our revenue growth down on lower sales from Skalhuset and cut the EBITDA margin with 1pp as we anticipate integration costs and higher input prices.

As of closing on 22nd of February 2024, Northbaze’s market capitalisation stood at SEK61m, resulting in an Enterprise Value (EV) of SEK76m. This corresponds to an LTM EV/Sales multiple of 0.7x.

In 2024E, we project Northbaze will reach sales of SEK218m, with an EBITDA of SEK12m. Based on these estimates, the implied EV/Sales multiple for 2024 is 0.3x, while the EV/EBITDA multiple is 6.1x. Both adjusted for the SEK10m earn-out and for the Skalhuset acquisition.

We believe the primary catalysts for Northbaze’s share performance are announcements of large customer contracts and margin expansion following the establishment of productivity and cost-saving measures.

We derive our fair value range from a fundamental DCF framework for three scenarios: base case (most likely), bear case (pessimistic), and bull case (optimistic), using a WACC of 13.5%.

As mentioned, we are adjusting our valuation range downward to SEK0.10 - SEK 1.57 (SEK0.22 to SEK2.20) with a Base case at SEK0.71 (0.8).