Invisio Will Ride Strong Market Tailwinds to Achieve 29% Revenue Growth

Catalysts

• Strong Market Tailwinds: The current addressable market is estimated at around SEK 25 billion annually, while the company’s full-year revenue for 2024 stands at approximately SEK 1.8 billion. This significant market gap highlights substantial upside potential as defense spending continues to rise globally, particularly in Europe and North America where defense budgets are expanding. Invisio thinks the addressable market is close to SEK 25 billion annualy, providing plenty of runway for future growth.
• Robust Order Book and Revenue Growth: With record-high order intake and a growing order book, the company is well-positioned to benefit from industry tailwinds, including higher defense spending and technological advancements. This bodes well for moving sales and earnings meaningfully over the coming years.
• Sticky business model, once the products are approved by military/law enforcement you have a long cycle of being able to sell the products.

Assumptions

• Assumptions for Revenue Growth Based on the strong tailwinds in defense spending and the company’s robust innovation pipeline—including new product launches and strategic acquisitions—we assume that revenue will grow at a minimum of 29% per annum over the next five years. Which is supported by historic revenue growth (assuming also industry tailwinds will amplify growth even further, in line with the most recent trends):
  • 3-Year Lookback (Dec 21 to Dec 24): Annualized CAGR: (1,807 ÷ 593)^(1/3) – 1 ≈ 45.0% per year.
  • 5-Year Lookback (Dec 19 to Dec 24):• Total growth: (1,807 ÷ 514) – 1 ≈ 251.5%• Annualized CAGR: (1,807 ÷ 514)^(1/5) – 1 ≈ 28.5% per year
  It should be noted however that analyst forecast revenue to grow from SEK 1,970 million in 2025 to SEK 2,691 million in 2027, representing roughly a 16–17% compounded annual growth rate over this period. Year-on-year, this implies around a 20% increase from 2025 to 2026 and approximately a 14% increase from 2026 to 2027, which implies a significantly lower growth rate than assume above. But I find no compelling reason as to why apply such low growth rate given (a) the historical trend and (b) the very strong industry tailwind. Albeit the law of larger numbers will kick in at some point I think the addresable market indicates that room for growth is ample to support 29% pa revenue growth for the upcoming five years
• Assumptions for Net Profit Margin Improved operational efficiencies and scale effects, driven by increased sales and a more predictable cost structure, are expected to enhance profitability. Currently, net profit margins are on an upward trajectory—from roughly 14% at the end of 2023 to about 17% by the end of 2024. We project that, with sustained revenue growth and better cost leverage, net profit margins could expand further, potentially reaching the 20–22% range over the next five years. Assuming the midpoint for the model 21%. Also supported by analysts expected net profit margins 2025: 18.3%, 2026: 19.3%, 2027: 21.0%.

Risks

• Economic and Fiscal Constraints: A global economic slowdown or tighter fiscal conditions could lead to reduced government defense budgets, limiting the expected revenue growth (however this is deemed less likely).
• Geopolitical and Regulatory Risks: Shifts in international security priorities, such a peace in Europe could lead to a short term share price retraction.

Valuation

• Considering the comparables and industry averages, a reasonable fair value PE multiple for would likely fall in a range of about 25x to 30x. This range takes into account: The industry average for defense and aerospace, which is around 23.9x, The fact that some peers trade at higher multiples (with a broad range from 19.4x up to 56.7x), and Invisio's historical valuations makes it hard to nail down a range with confidence. The only thing that reamins clear is that today's PE of 55 + is excessive and must come down over time. Given the certainty of the business, the strong tail winds in the industry a PE multiple of 26 is assumed for the model.
• Discount rate Simply's base discount rate of 5.10% i used as a base adding:
  • Poor Cash Conversion: Weak cash conversion can indicate that the company may struggle to convert earnings into free cash flow, increasing liquidity risk. This uncertainty typically warrants an additional risk premium—in this case, an extra 1%.
  • Insider Disposals: When insiders sell shares, it can be interpreted as a lack of confidence in the company's future prospects or a signal of potential overvaluation. To account for this increased risk, an extra 2% is added.
  Thus, with these adjustments, the discount rate becomes:5.10% (base) + 1.00% (cash conversion risk) + 2.00% (insider disposals risk) = 8.10%.

To be on the lookout for nextcoming Qs

• Revenue and Order Book Execution: Look for updates on order backlog conversion and revenue guidance to ensure the company sustains its strong revenue growth trajectory and leverages the significant addressable market.
• Margin and Cash Flow Trends: Monitor any improvements in net profit margins and cash conversion efficiency, as these will validate assumptions for margin expansion.
• Product Pipeline and Insider Activity: Pay attention to progress on new product launches and acquisitions (e.g., INVISIO Link and UltraLynx™), along with any significant insider buying or selling, as these can indicate management confidence and signal future growth potential.