I-Tech's Selektope Expansion Will Drive 28% Revenue Increase in 5 Years

Catalysts

• Product Expansion: I-Tech's antifouling agent, Selektope, has been integrated into the product portfolios of six major global paint manufacturers, with ongoing development in others. This broadening adoption indicates a growing market acceptance and potential for increased sales.cr.abgsc.com
• Geographic Market Growth: The Asian market, particularly Korea, has shown significant sales growth for Selektope, e.g. with a 147% increase in the first half of 2023 compared to the same period in 2022. This surge suggests a strong demand in key shipbuilding regions, which could substantially boost revenues.selektope.com
• Another potential catalyst that could further accelerate growth would be if the company manages to introduce its product also for the dry-docking market. Currently the product is primarily used for new builds. positioning its total addressable market (TAM) between USD 350 million and USD 500 million. i-tech.se

Assumptions

• Revenue Projections: Assuming continued adoption of Selektope by major paint manufacturers its expected that growth will continue at about 28%. This projection is below current growth trends (around 45% in last two years) but more reasonable in the long term.
• Earnings Outlook: With the anticipated revenue growth and operational efficiencies, earnings are expected to improve correspondingly. However, this is contingent upon managing regulatory compliance costs and maintaining favorable market conditions.

Risks

• Regulatory Challenges: The renewal process for Selektope's approval within the EU presents a significant risk. Any unfavorable decisions or delays could impact sales in European markets and potentially influence other regions.i-tech.se
• Market Dependence: A substantial portion of I-Tech's sales is concentrated in the Asian market, particularly with major customers like Chugoku Marine Paints. This reliance poses a risk if market dynamics shift or if there's a downturn in these regions.storage.mfn.se

Valuation

• Revenue and Profit Margins: With successful market expansion and product adoption, revenues could potentially double over the next three years. Profit margins are expected to improve as economies of scale are realized and operational efficiencies are enhanced 25% --> 28% in the upcoming three years.
• Given the sizeable market size I assume the company can defend a 22-27 PE ratio also going forth.
• Discount rate --> 9% due to the small size of the company.

To be on the lookout for in the upcoming Q-reports

• Top-Line Growth: Monitor quarterly revenue figures to ensure they align with the projected 28% growth trajectory (over time). In 2024, I-Tech reported a 48% increase in net sales, reaching SEK 179.45 million, with a notable 129% year-over-year growth in Q4. Consistent revenue growth is essential for meeting long-term financial targets.i-tech.se
• Cash Flow Management: Despite the significant increase in sales, operating cash flow remained relatively flat, with SEK 35.17 million in 2024 compared to SEK 35.14 million in 2023. This stagnation suggests that increased revenues are not translating into proportional cash flow improvements. This needs to be improved over time.i-tech.se