but more specifically about their cash position and the organic growth, they havent been that active on the m&a side, which makes me wonder, what are they wating for?
They are still small and their world of opportunities should not shrink that quickly, so what do you think happening there?
Thanks for the question. I haven't researched $TEQ in great detail so I'm not gonna speculate on what they should be doing with their capital. Just my 2 cents:
* There was much to do about the CXO's share sale without notifying it to the regulator. This statement then got more attention during the results Q&A session. Personally, I found this type of communication a bit amateurish.
* The share issue was meant to not run out of capital in case a lot of M&A talks would come to fruition (so avoiding the risk of not being able to grasp the opportunities whenever they would present themselves).
* Organic revenue growth was -8% in 2023, whereas in 2022 it held up very well.
* Margins took a hit in the fourth quarter, partly explained by one-offs.
* On the acquisition front, we've seen a positive revaluation related to the contingent liabilities (earn-outs) of 4m SEK versus a negative 3.8m SEK in FY22. Of course, there are a lot of moving parts in determining the fair value of these deferred payment structures.
On the acquisition front, they have a long runway for growth but in hindsight, I don't think the share issue was necessary (Teqnion is now almost debt-free when taking the projected FY24 cash flow into account with no new acq). When you're not growing organically, you should get some working capital release (all else being equal). As such, the operational cash flow would be large enough to absorb their latest acquisition (Nubis, should be around 40m SEK or so?).
Now, that's where it gets interesting: the working capital tied-up accelerated in FY23 with an outflow of 65m SEK versus an outflow of 47.6m SEK in FY22 (when organic growth was strong). After adjusting for their current lease amortizations and notably larger outstanding lease debt at the end of 2023, you could see some headwinds to cash flow in FY24 as well.
EBITA was 170.6m SEK in FY23, FCF adjusted for IFRS lease effects was 70.3m SEK or a 41% conversion rate. Lifco was at 67%.
What continues to catch me by surprise is the valuation $TEQ was trading at prior to the recent correction, close to being on par with Lifco, Indutrade.
Time will tell how this story will evolve but I remain on the sidelines: the underlying capital intensity through lease debt doesn't immediately show up in the cash flow statement, the frequency of new acquisitions. Let's stick with LIFCO for now. ;-)
great write up as usual!
i would love to hear your thoughts on teqnion.
and thier
but more specifically about their cash position and the organic growth, they havent been that active on the m&a side, which makes me wonder, what are they wating for?
They are still small and their world of opportunities should not shrink that quickly, so what do you think happening there?
Thanks for the question. I haven't researched $TEQ in great detail so I'm not gonna speculate on what they should be doing with their capital. Just my 2 cents:
* There was much to do about the CXO's share sale without notifying it to the regulator. This statement then got more attention during the results Q&A session. Personally, I found this type of communication a bit amateurish.
* The share issue was meant to not run out of capital in case a lot of M&A talks would come to fruition (so avoiding the risk of not being able to grasp the opportunities whenever they would present themselves).
* Organic revenue growth was -8% in 2023, whereas in 2022 it held up very well.
* Margins took a hit in the fourth quarter, partly explained by one-offs.
* On the acquisition front, we've seen a positive revaluation related to the contingent liabilities (earn-outs) of 4m SEK versus a negative 3.8m SEK in FY22. Of course, there are a lot of moving parts in determining the fair value of these deferred payment structures.
On the acquisition front, they have a long runway for growth but in hindsight, I don't think the share issue was necessary (Teqnion is now almost debt-free when taking the projected FY24 cash flow into account with no new acq). When you're not growing organically, you should get some working capital release (all else being equal). As such, the operational cash flow would be large enough to absorb their latest acquisition (Nubis, should be around 40m SEK or so?).
Now, that's where it gets interesting: the working capital tied-up accelerated in FY23 with an outflow of 65m SEK versus an outflow of 47.6m SEK in FY22 (when organic growth was strong). After adjusting for their current lease amortizations and notably larger outstanding lease debt at the end of 2023, you could see some headwinds to cash flow in FY24 as well.
EBITA was 170.6m SEK in FY23, FCF adjusted for IFRS lease effects was 70.3m SEK or a 41% conversion rate. Lifco was at 67%.
What continues to catch me by surprise is the valuation $TEQ was trading at prior to the recent correction, close to being on par with Lifco, Indutrade.
Time will tell how this story will evolve but I remain on the sidelines: the underlying capital intensity through lease debt doesn't immediately show up in the cash flow statement, the frequency of new acquisitions. Let's stick with LIFCO for now. ;-)
Thank you very useful information, I'm learning a lot from you!