Allterco: a smart investment, for a smart home (HOLD – transfer of coverage)

Due to a change in analyst responsibilities, we are transferring coverage of Allterco with a HOLD rating, and a 12-month price target (PT) of BGN 17.2/share, offering 5% upside. We appreciate the company’s growth outlook (35% 2021-24E sales CAGR vs. the peers’ 5% median). We remain conservative on profitability, however, with an average 2022-24E EBIT margin of c.20%, below the guidance of c.25%, due to: i) production costs pressures in China; ii) ongoing supply-chain issues; and iii) rising salaries and overhead. With its superior sales outlook, Allterco trades at 18-57% premiums on our 2023-24E EV/sales (1.7-3.3x). Combined, however, with premiums on earnings valuations that are not justified, even on improved 2023-24E profitability, we believe there is limited room for further price appreciation. Thus, at this juncture, we believe Allterco is a stock to HOLD. In the long term, we see it as offering unique exposure to the rapidly-growing global Internet of Things (IoT) market, and strong potential in FCF and earnings capacity, while also being able to deal with the above-mentioned profitability challenges. As part of Allterco’s strategy, and due its healthy balance sheet, we could see possible value-accretive M&As in the IoT space as a potential trigger.