Yesterday, Astor announced the acquisition of AMMUNITY and with that the market entry into the Baltics.
Astor has yet again pulled off a strong M&A deal by acquiring AMMUNITY for only 4.4x EV/EBITDA. The company is based in Riga and is Latvia's only manufacturer of military small arms ammunition and a leading provider of fine caliber ammunition in the Baltics (all NATO standard) for Armed Forces/procurement agencies in the Baltics. With FY'24 sales of SEK 103m (+80% yoy) and a 21% EBITDA margin, the company shows a strong growth and profitability profile, underpinned by a standing contract with the Latvian government worth SEK 400m coupled with an option for further SEK 400m. Moreover, it has additional request for ammunition worth SEK 360m from a third customer, thus leading to a total soft order backlog of SEK 1.16bn (i.e. >10x FY'24 sales), creating a strong visibility on demand, in our view.
Perfect strategic fit and door opener into the Baltics. Next to strong fundamentals, this acquisition looks set to perfectly fit into Astor's product portfolio. By now serving ammunition (next to drone and radar jammers, composite parts and various other high-tech equipment), it diversifies the revenue mix and gives it a slightly more recurring touch. More importantly, Astor now has a foot in the door at the Baltic Armed Forces/procurement agencies and thus enters the Baltic defence market by potentially up-selling all of Astor's product portfolio. Also, the other way, Astor can now also offer the Scandinavian Armed Forces/procurement agencies with supply of ammunition from the close neighbor Latvia, which currently mostly rely on the Norwegian company "Nammo" for their ammunition supply.
Astor to fund growth investments. The strong demand for ammunition directly creates the need to expand, whose expenses are likely to be financed by the parent company Astor, given that further debt intake at AMMUNITY (200% net debt/equity, based on acquisition value of equity) should not be healthy. In our view, this should also explain the comparably low acquisition multiple, as it does not contain the upcoming growth investments.
Against this backdrop, we confirm our BUY recommendation. We now incorporate the recent M&A (100% of Carbonia; 39% of NSG/Cesium, recorded at equity and now 100% of AMMUNITY) in our estimates, as we assume the closings to go through as announced. Therefore, we raise our estimates accordingly and arrive at a new PT of SEK 54 (old: SEK 40), based on DCF.
ISIN: SE0019175274
