fbpx

Written by 08:00 Analys, Research

MOTION DISPLAY: Bright spots shining through persistent headwind

The hangover from the pandemic continues to linger for Motion Display. But there are bright spots. With a well-documented effect on sales, a breakthrough order in Australia, progress in Europe, a potential redemptive order in the US and lower OPEX we see a good chance for management to turn the ship around. After some revisions to our model, we now find support for a fair value of SEK 1.6-1.9 (2.1 – 2.5) per share, in 12-24 months.

Andreas Eriksson | 2022-11-25 08:00

This commissioned research report is for informational purposes only and is to be considered marketing communication. This research report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and Emergers is not subject to any prohibition on dealing ahead of the dissemination of investment research. This research does not constitute investment advice and is not a solicitation to buy shares. For more information, please refer to disclaimer.  
 
New markets = new opportunities
Motion Display continues to experience headwinds in the US, where the company has put most of its sales effort. While sales in Q3 was soft at SEK 2m, Q4 has gotten off to a better start with two large orders amounting to a total of SEK 3.8m. One bright spot is the entrance to the Australian market with a SEK 1.1m order from global liquor giant Diageo. As Q4 historically has been the strongest quarter, and the two orders in Q4 show how quickly things can change, we´re keeping our FY sales forecast of SEK 18.5m for 2022. The low reported gross margin at 34% in Q3 is a bit worrying, and should be related to rising input costs, but is partly offset by a 23% cut in OPEX relative to Q2´22.
Aiming for steady state and beyond
With regards to Motion Display’s technology and product offering our conviction remains strong. Plenty of case studies support a dramatic sales increase in physical stores, and we expect Motion Display to benefit from an increase in in-store marketing spend after two tough pandemic years. Historically, Motion Display has reported sales around SEK 30m in a “normal year”, with a record SEK 50m in 2018. Being somewhat forgotten the company now needs to fight for attention. But the entrance into Australia and recent order in the US suggests that change could be underway.
High-risk case with significant upside potential
At present, with one-offs orders here and there, we see a somewhat binary investment case, an impression that is further reinforced by the cash position at end of Q3 of a mere SEK 0.5m. While cash has been replenished by a SEK 2m loan from Almi and temporary relief of pre-paid taxes of SEK 3m in Q4, the company needs to increase revenues. We’ve now made some minor revisions to our model, mainly lowering short term gross margins to 35% (45%) as sector colleague Pricer’s margins also took a hit in Q3 following a staggering rise in input costs. We now find support for a fair value range of SEK 1.6 – 1.9 per share (2.1 – 2.5), based on a rather defensive WACC (30%) and conservative target multiples of 1x Sales’24E and 10x EBITDA’24E. Should the company manage to recover to historic revenue levels, which we expect in 2023/24, the depressed sales multiples of 0.5x ‘22E and 0.3x ’24 support a significant revaluation potential in the share.

DISCLAIMER

This commissioned research report is for informational purposes only and is to be considered marketing communication. This research does not constitute investment advice and is not a solicitation to buy shares. Information provided here or on Emergers’ website emergers.se is not intended to be financial advice. This research shall not be construed as a recommendation or solicitation to invest in the companies described. Emergers cannot be held liable for either direct or indirect damages caused by decisions made on the basis of information in this analysis. Investors are encouraged to seek additional information as well as consult a financial advisor prior to any investment decision.

This material is not intended to be financial advice. This material has been commissioned by the Company in question and prepared and issued by Emergers, in consideration of a fee payable by the Company. Emergers charges a standard fee for the production and broad dissemination of a detailed note following by regular update notes. Fees are paid upfront in cash without recourse. Emergers may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained herein represent those of the research analyst at Emergers at the time of publication. The company has been given the opportunity to influence factual statements before publication, but forecasts, conclusions and valuation reasoning are Emergers’ own. Forward-looking information or statements contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Emergers shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained in this material.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Emergers’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in this material may not be eligible for sale in all jurisdictions or to certain categories of investors. Investors are encouraged to seek additional information as well as consult a financial advisor prior to any investment decision.

Investment in securities mentioned: Emergers has a restrictive policy relating to personal dealing and conflicts of interest. Emergers does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Emergers may have a position in any or related securities mentioned in this report, subject to Emergers’ policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Incirrata AB (Emergers)

United Kingdom
This document is prepared and provided by Emergers for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the ”FPO”) (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States
Emergers relies upon the ”publishers’ exclusion” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Emergers does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Read Less Read More

For new research on growth stocks, sign up to our newsletter