ERP Integration And Swedish Own Brands Will Unlock Value

Key Takeaways

• Focus on own-brand expansion, digital capabilities, and sustainability aims to boost margins, profitability, and long-term sales growth.
  
• Completed integration and cost reduction initiatives free resources for efficiency gains and position the company for stronger earnings.
  
• Overreliance on acquisitions, geographic concentration in Sweden, operational challenges, rising financial risk, and weak demand collectively threaten Alligo's revenue growth and profitability.

Catalysts

Offers workwear, personal protection equipment, tools, and consumables in Sweden, Norway, and Finland.

• The company has completed its major integration and ERP/platform harmonization projects, freeing up organizational bandwidth to focus on sales and efficiency improvements; this should drive operating leverage and improve EBITDA and net earnings as sales growth returns.
  
• Alligo is increasing the share of proprietary (own) brands-especially in Sweden-resulting in higher gross margins and pricing control; as this mix grows across other geographies, it is likely to boost group-level net margins and profitability.
  
• The group is responding to customer demand for cost competitiveness and sustainability by launching new budget-friendly own-brand lines, successfully differentiating from low-price competitors while also gaining SBTi approval for its climate targets, supporting long-term sales growth and providing margin protection.
  
• Digital capabilities, a harmonized assortment, and the completed ERP platform position Alligo to leverage growing digital B2B procurement trends and shift toward omnichannel, likely increasing customer retention, share of wallet, and recurring revenue.
  
• Recent and ongoing cost reduction programs are expected to deliver annualized savings of SEK 100m from mid-year 2025, with full effects yet to be seen; this positions the company for margin expansion and stronger earnings as volume growth resumes and macro headwinds ease.

Alligo Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Alligo's revenue will grow by 5.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.4% today to 8.0% in 3 years time.
• Analysts expect earnings to reach SEK 878.4 million (and earnings per share of SEK 13.7) by about July 2028, up from SEK 227.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.5x on those 2028 earnings, down from 23.5x today. This future PE is lower than the current PE for the GB Trade Distributors industry at 32.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.66%, as per the Simply Wall St company report.

Alligo Future Earnings Per Share Growth

Risks

• Long-term organic revenue growth is weak (-4.3% in Q2; -1.3% even after adjusting for one-offs), indicating an overreliance on acquisitions for total revenue growth; if this persists, it could structurally pressure topline revenue and future earnings potential.
  
• Profitability is highly concentrated in Sweden, making Alligo vulnerable to further downturns or stagnation in the Swedish market; this geographic concentration risk may impact group-level EBITDA and net margins.
  
• Integration of acquisitions and the continued struggle to turn around underperforming segments (e.g., Finland) present ongoing operational risks; failure to realize expected synergies or improve profitability in lagging regions could weigh on margins and cash flow.
  
• Rising net debt (now at SEK 2.1 billion, net debt/EBITDA at 3.2x) due to a combination of acquisition pace and declining operating cash flow increases financial risk; elevated leverage during market uncertainty may constrain future growth initiatives and impact earnings.
  
• While Alligo is investing in own brands and sales initiatives, customer demand remains cautious, especially among SMEs, and there is evidence of price sensitivity driving some customers to low-cost competitors; sustained weak demand or inability to regain pricing power could compress margins and pressure both revenues and profitability.

Valuation

• The analysts have a consensus price target of SEK147.5 for Alligo based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK11.0 billion, earnings will come to SEK878.4 million, and it would be trading on a PE ratio of 10.5x, assuming you use a discount rate of 7.7%.
• Given the current share price of SEK106.4, the analyst price target of SEK147.5 is 27.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.