Elevator Pitch: Discover weaknesses in concrete structures with our technology before you end up in the headlines.
Market Value: approx. 60 million euros
Founded: 2013
Listing: 2020, 6 NOK
Stock Exchange: Norway / Euronext Growth
Employees: 15 (Elop AS) + 80 (Simplifai AS)
Industry: technology
Customer Base: b2b
Www: https://elop.no
Elop AS is a Norwegian technology company with two pillars. (And yes, as a former Nokia owner, I became interested in researching the company just based on its name. 
)
The main business is based on a rolling device called COBRI that scans concrete structures and produces a 3D visualization from the measurement data. The company claims to be the only player in the market capable of this. After a rather long product development phase, it is moving into the commercialization phase.
The customer is offered a device that can identify structural changes below the surface before they lead to structural weakening. Ideally, this can prevent property damage and optimize the lifespan of structures. It would also be possible to check upon delivery that the structure implemented by the contractor matches what was ordered – without destructive intervention in the structures (NDT).
The data produced by the solution can be viewed with a separate program and will end up in the MyInfra portal (working name) to be launched this year, which the company classifies under the concept of Asset Management System. By 2023, the solution is intended to be expanded into a more comprehensive service, to which sensor data can be combined and data analysis methods utilized. In other words – extract added value from the data for the customer.
The company considers software expertise and service a key differentiating factor, enabling long-term monitoring and automated analysis of changes. The goal is to generate continuous revenue from customers instead of just device sales (the industry’s traditional model).
The roadmap shows the goal of utilizing the scanner also for analyzing other materials, but I will not discuss their possibilities further.
The technology is protected by two patents. They have been extensively registered in various countries and market areas, including China.
In January, the company completed the acquisition of Norwegian Simplifai AS (share exchange). The company continues as an independent subsidiary, while supporting the parent company’s product portfolio development. So I will treat it as a separate company.
The company stated it would gain SaaS and automation expertise through Simplifai AS. Robotics, chatbots, light AI. Not very revolutionary technology, but there is strong market demand for it. Plus development resources to support its own product development.
In 2020, revenue was 11 million NOK with EBIT at a loss of 24 MNOK, so the parent company’s cash reserves will be used until the operations become independently profitable. Simplifai AS has won tenders related to document and email processing, also outside Norway, such as in India and Singapore. Most of the experts and developers are in India and Ukraine, so compared to other Europeans, they may have a cost advantage.
Business
COBRI was only launched for commercial sale in December, so it’s pointless to analyze the company’s revenue financing. It doesn’t exist yet. There is enough initial capital in the cash register for 2-3 years of loss-making operations at the current burn rate.
The development of the main business’s revenue is difficult to predict. COVID restrictions and the old-fashioned nature of maintenance operations are not a good combination for the initial stages of sales. Selling a new solution and a “digital leap” may prove more difficult than planned. The company’s own expectations are focused on the second half of the current year and then only on the formation of “industrial partnerships”.
Instead, Simplifai AS’s revenue is growing rapidly. Comparing 2020 revenue and the MRR growth curve, billing appears to be a year behind. The hockey stick MRR blade for January-February of the current year gives hope for a faster growth phase. It remains to be seen whether the company can secure contract extensions.
I did not find a precise numerical target for the main business line’s revenue development for this or the coming years. For Simplifai AS, the 2021 revenue estimate is 25 MNOK, continuing its growth to more than tenfold by 2025. Such long-term forecasts can only be considered guesses.
The units’ combined published revenue target for 2025 is over one billion NOK, of which software’s share would be over 80% and profitability at the level of a SaaS provider. I cannot fault the lack of ambition…
Opponent’s Corner
Ultrasound-based devices are not new technology. This is both an advantage and a disadvantage. Others are available from manufacturers with a brand and customer relationship advantage, although (according to the company) not bundled with “digital” in the same way as theirs.
It remains to be seen whether the benefits achievable with mere 3D visualization, spiced with a digital leap, are sufficient grounds for winning customers. According to the company, the annual size of the equipment market is only 11-13 million US dollars. This cake should therefore be decorated with continuously billed value-added services and expanded towards new market areas.
To achieve this, in my view, the company should bring about a change in customer operating practices. In addition to mandatory, statutory inspections, realizing the benefits of the device would require proactive, active operations. As I mentioned, the practices of an industry considered old-fashioned (McKinsey’s Digitisation Index) do not change overnight.
The cooperation agreement made last year with Dekra, which performs inspections, is one indication of how industry practices are being attempted to change together with companies conducting structural research.
Blah blah, just say the target price
Pareto’s target price is 12.50 NOK, with the share price currently around 7 NOK. Arctic Securities gave a target price of 11 NOK in the autumn. Quite a gap. Pareto was an advisor in the listing and the Simplifai AS deal, and Arctic Securities has been involved, so the praise from ratings should be taken with a grain of salt.
The company combines an ESG perspective and an AI/IT aspect through Simplifai. So why is the difference to the analyst price so big? At the same time as the company’s insiders have bought shares? The market may be suspicious of the same thing as me – the main business’s sales track record is missing. From zero, the journey is certainly upwards, but how much will it rise?
I will wait for further evidence. The current price hovers near the listing price and has not been inflated by hype yeast, but the company’s story has not yet received confirming elements. Simplifai AS’s strong growth is not enough to support the entire portfolio.
Discussion opened!
This is not an investment recommendation. Instead, I recommend listening to Queen’s Greatest Hits II collection and having more to life than just stocks.
Materials
Merkur Market listing document:
H2 earnings release presentation material:
McKinsey Digitisation index (2016)