The company currently supplies air purification equipment to three different segments: Facility (FS), Room (RS), and Cabin Solutions (CS).
Roughly, they can be divided into the following types of businesses:
FS – Food Industry, Automotive Industry, and Logistics (9%)
RS – Production in Cleanrooms, Hospitals, Bio/Meditech Labs (10%)
CS – (Smoking Cabins) Airports, Train Stations, Offices, etc. (81%)
The global conquest is well underway, and currently, most products are sold by segment as follows:
FS - Europe. In Q2, a new device designed for food production, including a variation with a HEPA filter, was introduced to Europe. During Q3, a product aimed at large industrial facilities was introduced.
RS - United States. Clearly the fastest-growing segment with a 2016-2019 CAGR of 63%.
CS - Japan. Smoking regulations in public spaces in Japan are driving strong growth.
Here is a slightly more recent picture of the countries where the company operates.
I must note that these images do not contain the most recent information.
For example, the sentence at the beginning of the regulation text: “On the Japanese market, the company’s entire sales of…”
May no longer be accurate, and the second image also presents data from 2017.
However, it is known that, for example, Qleanair’s market share in the Tokyo area is approximately 65%.
Asecos and Smoke Solutions entered the Japanese market only in mid-2018. Smoke Solutions sells so-called “cheap and good” products, whereas Smoke Solutions then focuses more on public spaces.
Börsposten did this story last month. Pareton analyst Anders Roslund explains a bit about why Qleanair is, in their opinion, one of the best “small-cap cases”
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Over the weekend, I’ve been going through the company and thought I’d publicly list a few things I find interesting in addition to the general development:
RS development, has the company been able to sell products normally in the United States
How many equipment contracts have been sold to financing companies (amount of recurring billing)
Order backlog
Will there be information about the PostNord agreement / is it already visible in the order backlog.
Thanks for the great opening. This seems like an interesting case.
At first glance, it seems to be screaming cheap. If H2 is anywhere near H1 level, then EPS 2020 easily goes above 4 SEK, in which case at the current ~38 SEK price, P/E 2020 goes well under 10. And if it still grows at 10% annually (the realized growth was perhaps around 13% for several years).
Indebtedness, in my eyes, stood out as perhaps the biggest question mark. From the Q2 balance sheet:
Equity 132,679
Liabilities 501,542
Interest-bearing liabilities total 288,699
Some larger debt restructuring apparently took place in 2019 Q4, from which large one-off expenses were recorded (weighed down 2019 earnings into the red).
If I interpreted correctly, the IPO apparently consisted mainly of the principal owner’s share sale. Why weren’t more capital raised for the balance sheet at the same time, if the intention is to grow?
Or could it be related to the transition to the IFRS 16 standard at the beginning of the year? I’ll have to take a closer look at this today.
Qevirp 41 Ltd remained a major owner (40.7%). Apparently, they have listed companies before. Among the Swedish companies listed by Qevirp, ByggPartner i Dalarna has been a rocket stock in recent years. Qevirp has doubled QleanAir’s revenue before listing and has started developing the Clean air as a service business model. Here’s more about the largest seller/current owner:
I’ve been looking into the clean air market a bit earlier, when I invested in Naava. Qlean seems like a quality player in the sector, I took a small tracking position today.
5 SEK EPS, a share price of 38 SEK, and a 13% annual growth rate indeed give a PEG ratio of 0.58. If one believes in the growth, then with simple multipliers, it does seem quite cheap? I’d gladly hear more about this, and hopefully, forum users will start digging for information.
The latest interim report made a rather convincing first impression, and I’ve now made some small purchases on my investment savings account (OST).
e. Perhaps what concerns me most is that, besides the main owner, there isn’t a strong second-largest owner on the list. What is Qevirp’s strategy regarding its holdings? I haven’t encountered this with other companies in my own portfolio yet. On the other hand, this could also be seen as a driver in the future; if the company breaks through and grows, there will be plenty for funds and the like to buy.
Interesting case. Given its current performance and track record, this indeed looks very affordable. A few analysis firms have highlighted industry/market area risk, but these risks currently seem overpriced to me. I would say rather that due to an unfortunate IPO timing and a poor Q4/2019 result caused by one-off items, the company is really badly under the radar (I couldn’t even find a single message about the company on Shareville?).
The market for smoking facilities may not be as dead as one might think from a Nordic perspective, and even if it were, the company is starting to have other revenue streams + indeed almost half is continuous billing with multi-year contracts. It certainly won’t collapse in one or two quarters. On the contrary, development has been upward in recent years.
A quick Google search suggests that the global tobacco product market would even be in slight growth in the coming decade, and in emerging markets, one could assume there are deficiencies regarding facilities and health legislation. Corona and increasing regulation of air purity in all industries could also act as a positive medium-term trend.
As a side note, among the largest owners, I found Taaler’s, or the “best Finnish asset manager’s” Nordic Value fund If only someone knew something about the purification devices or the company in general The numbers are tempting.
Why the “cheese account”? Don’t they aim to pay dividends too?
Dividend policy
QleanAir’s objective is that between 30-50 percent of the profit for the year shall be distributed as dividends to shareholders. The dividend proposal shall take into account QleanAir’s long-term development potential, financial position and investment needs. https://www.qleanair.com/en/investors/financial-targets
By the way, this year, 0.25 SEK/share was supposed to be distributed, but it was withdrawn. From my point of view, I don’t mind if none is distributed this year.
Based on the image, it seems that profitability is better in the first half of the year and dips slightly towards the end of the year. In principle, the Q2/2020 sales dip is a bit worrying that the good trend might be reversing, but it’s probably due to COVID-19. We’ll be wiser after Q3.
The recurring revenue development looks nice in principle, but what is “Finance Comp.”? Hopefully, it’s not just a technical change from one type of sale to another to make it look like sexy recurring revenue / XaaS billing. But even so, it looks affordable even without any as-a-service hype.
Key figures from Q4/2018 onwards:
The debt leverage seems to have developed in a rather pleasant direction, and the latest net debt/equity ratio of 1.7 no longer feels bad.
A halved order backlog doesn’t feel good, of course, but again, COVID-19 has certainly had an impact, and we’ll wait to see what Q3 looks like.
I tried to roughly estimate the current working figure for 2020 EPS based on the numbers. 51% of 2019 adj. EBIT was generated in H1, so if EPS follows a similar pattern and H1/2020 EPS was 2.37, then with the same percentage, one could expect 4.65 EPS for the whole year 2020. Calculated from this with a share price of 38, P/E is 8.18 and PEG is 0.82, if the company’s own target of 10% is used as the growth percentage. It still seems there’s a margin of safety.
It tells how many rental agreements Qlean has sold through financing companies. So, it’s not about cooking the books. The fact that there are financiers for these agreements is quite an interesting component of the overall picture. This allows for good “adjustment” depending on the market situation; for example, during the COVID-19 pandemic, more agreements have been sold using the company’s own “financing.” The idea of the scheme, as I understand it, is that if a customer wants to buy equipment in installments, depending on the market situation and the target, it can be considered whether to offer financing directly or through a financing company. If the products are purchased through a financing company, the service agreement is still made with QleanAir in any case.
From the webcast, I got the impression that it was precisely due to COVID-19. The products are such that remote sales are quite difficult as the companies’ needs must be verified on-site. I recall them regretting that the well-started sales of Cleanrooms stalled in the US because outsiders were not allowed into hospitals and companies.
I must also say about those cleanrooms that I have been involved in such activities for a client myself, and if the process is as easy as suggested in YouTube videos, it is an excellent product. The product is quite expensive depending on its size and requirements. Qlean counts them in the number of units sold as “one unit per 100,000 SEK order value.”
good kind of boring niche product (which allows for low share pricing, at least at the beginning of this stock exchange journey),
credible international growth path,
pleasant dividend prospects,
customer continuity with a service concept,
favorable multiples.
Good ingredients and similarities, for example, to the recently listed Harvia a couple of years ago.
The only downside is that investment analysis largely falls on the shoulders of small investors, as I haven’t found any investment research myself.
Is there strong competition in this industry and how easy is it to enter? The company certainly has growth opportunities. The market value seems to be under 60 million euros. Is there consolidation ongoing in the industry and what is QA’s position in the market? Will growth come entirely organically or also through acquisitions? (I’m just throwing questions out there as they come to mind…)
Those entry barriers also left me wondering. The company itself advertises that it has a patent and filter technology developed for a decade or even longer, but it’s hard to say how good of protection that provides. Is the technology truly superior to competitors in some way and are the patents such that they cannot be circumvented? There is clearly a competitive advantage as the business develops, but how sustainable is it?
I did find a slide there behind the link about these “barriers to entry”. According to that, at the time of the IPO, there were 30 patents and 10 new ones in the pipeline. The title implies that there would be a barrier to entry into the field.
Here’s a little graph of the competitive landscape, it’s worth noting that there isn’t a single competitor in all three product segments.
Zehnder and Camfil are at least huge companies, but they only compete in one segment. The rest, upon quick examination, are about the same size or smaller.
I joined in on this one. After a fairly quick look.
At the current price, the combination of earnings yield and growth (assuming it continues at over 10% in the coming years) offers a total return of over 20%. This was enough for me, with the facts mentioned in the thread as background. And the calculation doesn’t even take into account a possible increase in valuation multiples.
If only someone knew something about the purification devices or the company in general 
