Seamless Distribution Systems AB (SDS) - services for operators

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Seamless Distribution Systems AB supplies business-critical service platforms for payment services, solutions for digital sales, and, with the acquisition of Riaktor, also BI and analytics services, particularly for operators. Target markets include emerging markets in Asia and Africa, but also Europe and the Nordics.

We are Seamless

Seamless Distribution Systems (SDS) is a global technology leader in fintech, delivering end-to-end software platforms for electronic transactions and digitalization of supply chain. The company is headquartered in Sweden and listed on Nasdaq First North Premier (ticker: SDS). SDS has a global presence in over 50 countries with a focus on emerging markets in Africa, the Americas, Asia and the Middle East.

With over 30 years of experience and closeness to customers, SDS consistently delivers process efficiency and operational excellence. We enable customers to move digital value by facilitating value chain management through an extensive portfolio of scalable solutions.

The proprietary transaction switch platform, ERS 360°, is a multi-access electronic transaction platform that hosts high performance solutions for trade partners, distributors, telecom operators and service providers to drive revenue growth and optimize operations. SDS’ cross-functional teams based in Sweden, France, Romania, Belgium, Ghana, Indonesia, South Africa, Singapore, Pakistan, India and the UAE provide support to customers globally.

Company Presentation:

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Growth is a key word in the business, but cost-effectiveness is evident in many aspects, and the result is exceptionally positive even for a growth company. Looking at P/E ratios, SDS is expensive, but the P/S ratio is then considerably more moderate in terms of valuation.

Q2, however, had weaker profitability, which created a dip in the growth story. This included M&A costs and currency fluctuations, at least according to analysts’ comments; Q3 should see a return to the right track.

Services and Products

The flagship product is the ERS 360° full-service platform.

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SDS is divided into two operations, and with Riaktor, three

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Financial Figures and Reports

2020 Financial Statement in Swedish

2021/Q2 Half-Year Report

Figures after YTD Q2/21; these are still presentable, even after a weaker Q2.

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Analyst Coverage:

Redeye initiation of coverage, public materials

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Redeye Q2/2021 update

Analystgruppen

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Ostin/myin juuri äsken -ketju (Osa 3)
Ostin/myin juuri äsken -ketju (Osa 3)
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Taken from the report, a concise summary of events after Q2:

  • Completion of Riaktor acquisition.
  • Telenor’s first order for 9M SEK, with an option for 4M SEK in service sales.
  • Two orders from a new operator for 3.4M SEK over three years.
  • Riaktor secured a 5G network pilot project in Portugal and an 0.8M SEK order in Nigeria.

The new operator agreements are significant breakthroughs. Securing the first agreement is challenging, but subsequent contracts are easier, and Telenor, in particular, is a significant addition in this regard.

https://investor.seamless.se/nyheter/breakthrough-order-from-telenor-group-worth-usd-1-million-86971

“This is a major strategic and commercial milestone for us as we begin our engagement with Telenor, which is one of the world’s largest telecom operator groups. Only in Pakistan Telenor have more than 50 million customers. The competitiveness of our products continues to be proven by the growing list of operators and operator groups who see the advantages in SDS ability to meet the clients’ business needs. We now look forward to establishing a long-term relationship with this esteemed telecom operator group,” says Tommy Eriksson, CEO of SDS Group.

In addition to these, there is a 7.7M SEK order for the ERS 360° product in Algeria, among others.

https://investor.seamless.se/nyheter/sds-far-en-order-vard-77-miljoner-kronor-fran-ny-operatorsgr-88904

The corona pandemic has presented many challenges for sales, but since then, there have been many good indications that the story is continuing in the right direction.

Disclaimer

My initial positions were opened last week.

and doubled today to a total of approx. 3% of portfolios.

Ping: @Yu_Gong1 Could we get company pages for SDS: :pray:

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@kettunen SDS company page is now live and linked :slight_smile: Seamless Distribution Systems - osake - Inderes

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Further thoughts on why I became interested in this are well summarized in Redeye’s Q2 report comments.

As mentioned, Q2, like Q1, did not match the previous year’s revenue, which slightly faded the company’s growth stock image.

  • However, the coronavirus significantly affects the revenue of the SDD business in particular. This is receding, especially in Europe, from where SDD, in my opinion, receives most of its income.

  • The effects of the USD-SEK exchange rate are significant, and adjusted for them, revenue would have been at the previous year’s level.

  • Many new contracts have been signed, and a backlog has accumulated, which was not present at the beginning of 2021, leading to a somewhat soft Q1 and Q2, which also reflected in the share price drop.

  • More orders and contracts are in the pipeline, so the future looks significantly better than this year’s figures currently suggest.

  • Profitability has remained good through cost management. Gross margin, especially in the SDS business, is really strong.

  • Riaktor brought a small addition to Q2 revenue, but EBITDA remained slightly negative. Projects were moved from Q2, so they will show positively in future figures. Previously, EBITDA was at 40%, and revenue from the entire quarter will be included, so this has significant potential in terms of both revenue increase and profitability.

Of course, the above relies heavily on trust in the ability of different parts of the company to meet forecasts and thereby deliver on the mentioned outlooks. So far, my view supports these, and the growth potential is considerable. However, my expertise is not sufficient to cover the operations of Asian or African operators or the SDS offering there. Let the orders speak for themselves; Telenor is a significantly sized operator, and therefore, I also have confidence.

I try to find growth and turnaround companies with significant growth potential. Risks are also present, and they must be treated as part of the investment. In the case of SDS, I believe the Risk/Reward is significantly on the positive side, which is why it ended up in my portfolio.

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In terms of P/E ratios, it’s not cheap, as stated in the opening. The effects of the coronavirus in 2020 and 2021 are visible. P/S, on the other hand, is very reasonable, as is EV/EBITDA. My investment view is a growth company, which means I have to be a bit flexible with P/E if I want to find future stars. However, it’s not possible to make many major mistakes anymore.

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The service’s functionality and competitiveness have once again proven successful. Vodafone’s first delivery to Oman, full service, and in the future even 10-15% of recurring service revenue

Translate that press release into “London English”

Seamless Distribution Systems (SDS) has received a major deal from Vodafone Oman on its entire product offering. The deal is the first with the Vodafone group and means that SDS will be the strategic supplier of technology to Vodafone Oman, which is part of one of the world’s largest telecom groups …

… A SaaS agreement that extends over three years has been signed, which may provide recurring revenues amounting to approximately 10-15% of SDS’s current support revenues if Vodafone succeeds with its market penetration during the contract period.

Edit:
Here’s the same press release in “London English”

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Good opening, nice to see someone else has this in their portfolio. :smiley:

I bought this myself last spring. The timing wasn’t quite right, then came the Q2 report, and my investment in this is still at a loss at this point.

But my belief in this is strong. The P/E is indeed high here, but the operations are constantly moving strongly forward. SDS already has many contracts with major operators (Zain, MTN, etc.) and more are steadily coming, and the recently announced contract with Vodafone is certainly a very significant step: It is financially significant, but above all a great show of confidence from Vodafone as it starts operations in Oman. This could lead to a lot of good things.

This can by no means be called a startup; the operations are already well underway, the customer base is strong, but the operations are still in their early stages. There is plenty of market, and new orders are indeed coming in all the time.

The Q2 figures were a slight disappointment, but on the other hand, there are considerable differences between quarters; they don’t progress at a steady pace. The stock reaction was certainly justified, though. The positive thing is that profitability was still at a good level, especially considering the acquisition. The acquisition of Riaktr also seems like a strategically strong move, and will naturally only be fully reflected in the figures in the future. Of course, it would be nice to see the topline get on the right track in Q3, but now that these announced orders are coming in at this pace, I can’t be too worried about this in the long term.

I’ll have to update my own forecasts for this at some point; it has been neglected a bit, so the content of this message is quite limited. :grinning_face_with_smiling_eyes: But there is plenty of potential here!

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Thank you, and it’s great that others are interested. SDS hasn’t received much visibility, even though it’s a very interesting target. Perhaps its operations aren’t easily understood, and the target markets are far away, which limits investors. Even in Nordnet, there are only 268 owners currently.

I would also be happy to see your forecasts and views from the perspective of your original investment case. Have you, for example, compared the product portfolio for Tecnotree, or what other competitors are there and how does it compare to them? Syniverse, at least, is somewhat involved with similar characteristics, listing via SPAC.

Topline is essential for the growth story, but the backlog is also a significant factor in realizing growth in the longer term. These new large orders currently fill it and also offer potential for new openings.

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SDS among the presenters at Redeye’s Growth Day 2021. Approximately 20-minute presentation.

Surprisingly clear Swedish, I even managed to follow it somehow :sweat_smile:
The slides provide good background

https://fast.wistia.net/embed/iframe/c840rawpfi

A couple of slides from the video

Riaktr strongly supports SDS’s other activities by integrating analytics into the service.

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90% of the customer’s revenue goes through SDS’s services.

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SDS’s Q3 report was out last week

  • Growth at a good level and new agreements with larger operators, which have been previously highlighted, have been made.
  • However, the order book is smaller than expected, and the challenging economic situation keeps customers’ new investments limited.

https://investor.seamless.se/nyheter/delarsrapport-for-perioden-1-januari-30-september-2021-90222

July - September

  • Net sales amounted to SEK 78.7 (68.4) million, an increase of 15.1% compared to the same period last year.
  • EBITDA result amounted to SEK 19.7 (12.0) million.
  • EBITDA margin amounted to 25.1% (17.6%).
  • Profit after tax amounted to SEK 1.9 (1.8) million.
  • Earnings per share amounted to SEK 0.19 (0.22).
  • Total cash flow amounted to SEK -11.4 (0.2) million.

January - September

  • Net sales amounted to SEK 209.4 (224.5) million, a decrease of -6.8% compared to the same period last year.
  • EBITDA result amounted to SEK 44.7 (38.8) million.
  • EBITDA margin amounted to 21.3% (17.3%).
  • Adjusted EBITDA result amounted to SEK 50.0 (38.8) million, adjusted for acquisition costs.
  • Adjusted EBITDA margin amounted to 23.9% (17.3%), adjusted for acquisition costs.
  • Profit after tax amounted to SEK 0.6 (10.3) million.
  • Adjusted profit after tax amounted to SEK 5.9 (10.3) million, adjusted for acquisition costs.
  • Earnings per share amounted to SEK 0.06 (1.26).
  • Total cash flow amounted to SEK 20.8 (-1.3) million.

full report:

Redeye also published an updated analysis

sds-group-3q21-update.pdf (499.6 KB)

Base case increases from 72SEK to 80SEK
Fair value unchanged

Redeye forecasts

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SDS has a new order from Ghana, not a big one, but an order nonetheless. A completely new customer

https://investor.seamless.se/nyheter/sds-receives-an-order-worth-sek-3-0-million-from-a-new-custo-91946

Seamless Distribution Systems (SDS) has received an order worth 3.0 million SEK from a brand-new customer in Ghana. The deal concerns the commissioning of SDS’s flagship product ERS 360 °, which will replace the customer’s existing solution and facilitate the digitization of the customer’s sales and distribution channel.

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I’ve slightly fallen behind on following SDS since selling my position.

Q1 is out, steady plodding. Investment in the future, challenges in profitability.
At least a couple of orders were pushed from Q1 onwards.

https://investor.seamless.se/nyheter/interim-report-for-the-period-january-1-march-31-2022-95110

Interim report for the period January 1 - March 31, 2022

January - March

  • Net sales amounted to SEK 63.1 (61.5) million, an increase of 2.6% compared to the same period last year.
  • EBITDA earnings amounted to SEK 9.3 (13.9) million.
  • EBITDA margin amounted to 14.8% (22.6%).
  • Profit after tax amounted to SEK -7.9 (3.6) million.
  • Earnings per share amounted to SEK -0.8 (0.4).
  • Total cash flow amounted to SEK 4.4 (0.9) million.

CEO’s comments

"Intensive start to 2022
Net sales in level with the previous year
Net sales in the first quarter landed at SEK 63 million. This is an increase of almost 3% compared to the corresponding quarter last year, but lower than we had hoped for. The main reason is two large orders, which for reasons beyond the company’s control did not arrive as expected during the quarter. Profitability was thus weighed down by the increased personnel costs with the acquisition of Riaktr and EBITDA was just over 9 million, a decrease of 33% compared to the corresponding quarter in 2021. This again shows that the company’s development cannot be seen on a quarterly basis but requires a longer perspective.

A quarter with investments for the future
A very important activity for the company’s development was the participation in the Mobile World Congress, MWC, in Barcelona in the shift February-March. The company’s management conducted more than 20 high-quality customer meetings with high-level management teams at both new and prospective customers. The newly defined and expanded product portfolio attracted great interest and led to several new business discussions.

During the quarter, work was completed on the definition of our new product portfolio for the value chain we call Retail Value Management, RVM. Our mobile operator customers depend on the value chain being managed efficiently as a very large part of their revenue takes place through their dealer network. With our expanded and redefined product portfolio, we have clear solutions for all the steps, challenges and growth opportunities that the operator faces in RVM. We currently see no other supplier with such a clear and broad portfolio adapted for RVM - something that was also noticed by the operators we met at MWC.

The acquisition of the analysis company Riaktr in the spring of 2021 has immediately proved successful, with a positive contribution to the result in 2021. In 2022, we will take further steps in the integration of the company into SDS. The product portfolio from Riaktr is now a natural and strategically important part of RVM, in addition to its ability to continue to address its own business opportunities. During the quarter, we intensified the work with cross-selling on the expanded customer base that came with the acquisition, and we are already starting to see results from this in new business discussions.

The company carried out a directed issue of SEK 20 million during the quarter to the major owners. It feels good that all the owners surveyed participated and show continued confidence in the company and the organic growth investments the issue aims to enable.

Sales development during the quarter
An important deal during the quarter was the additional order of SEK 2.7 million that the company received in Pakistan with one of the largest international operators in the region. This is an operator group that was added as a customer to SDS in 2021 and which with the order already shows us a strategically important continued confidence. The order concerned our component Smart Campaigns & Commissions, SCC, and the customer is thus expanding its installation in Pakistan with another component from our RVM portfolio. As the operator group has several local operators in the region - two of which have been SDS customers since 2021 - we see further opportunities for a successful implementation.

In March, the formal and locally acclaimed agreement was signed with Vodafon Oman on site in Muscat. Vodafon Oman is making a major investment with its establishment in Oman and places great faith in SDS 'entire RVM portfolio. SDS has a volume-based business model with Vodafon Oman and the result during the quarter exceeded our forecast. Two major and important orders that were expected to arrive during the quarter were delayed due to customer-internal processes.

Clear course
The market for our services remains stable and our price remains stable. With the issue supplement, we can implement the nearby growth initiatives we have identified for our organic growth. Strengthened by what we saw at MWC, we continue to see interesting opportunities for SDS in an expected market consolidation among suppliers. We consider ourselves well positioned to take a leading role in this consolidation as we have already made the necessary technology investments in Microservices, expanded and sharpened the product portfolio and demonstrated the ability for longterm profitability growth and to successfully integrate acquired companies.

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It looks like more of SDS’s management and board members are leaving.

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Redeye’s comment on the latest order. Valuation has taken big steps down along with the rest of the market, so I’ll have to keep a closer eye on it again :thinking:

Seamless Distribution Systems: Worth the wait – SEK10m agreement from a new Saudi customer

Redeye reiterates its fair value range and Base Case (SEK52) following a major agreement from a new customer: a leading Saudi telecom group. The deal is initially worth SEK10m but leads to meaningful upsell opportunities and increases SDS’s foothold in Saudi Arabia, the largest market in the Middle East.

SDS received a SEK10m order through its partner Strategy& (a global strategy consulting firm and a part of the PwC network) to support a Saudi Arabia-based telecom operator group with its 5G buildout. The agreement regards SDS’s Smart Capex solution, essentially software for optimizing network investment planning for 5G and fibre. SDS expects most of the SEK10m to be recognized as revenues in Q3 2022 and states that this agreement could generate annual recurring revenues of the same size, should the customer continue using this product and renew its licenses. Management states to us that a typical lifetime for this product is about five to seven years (based on similar deployments).

Delayed orders have materialized

Sales in H1 2022 amounted to SEK132m (~SEK22m from Riaktr), growing 1% YoY but -11% organically (excluding Riaktr). SDS missed our sales expectations significantly (>10%) in Q1 and Q2 due to an underwhelming order intake. In Q1 2022, SDS stated that it was in negotiations regarding two large orders that were delayed. The first materialized in Q2 2022 and referred to an order for a Voucher Management System from a Dubai-based customer worth SEK8m. The second materialized today. This reflects well on management and its execution abilities.

Positives: significant order from a new customer, large market, and strong value proposition

There is a lot to like about this agreement: (1) SDS received its first order from this Saudi telecom group, which in itself is a meaningful catalyst. Should the deployment be successful, we think SDS is well-positioned to upsell additional solutions, including Smart Sales & Distribution and its RVM suite. (2) The company is establishing a significant foothold in Saudi Arabia, the largest market in the Middle East. Zain Saudi Arabia is a long-term customer of the group. With today’s announcement, SDS has business relations with two leading telecom groups in Saudi Arabia. (3) Smart Capex (developed initially by Riaktr) is a somewhat unproven solution. It generated sales of SEK9.3m in 2021 but has not led to any meaningful commercial breakthroughs until now. This agreement reflects well on Smart Capex’s value proposition and could act as a catalyst for additional deals.

Restored confidence in management and outlook

SDS’s share has been punished by weak earnings reports in Q1 and Q2 2022, trading down >50% YTD. Lack of organic growth, high management turnover, and uncertainty around the commercialization of Riaktr’s products have contributed to this negative sentiment. In our opinion, today’s agreement is essential as it restores confidence in management and the organic growth outlook. We set high expectations for H2 2022. While SDS is currently trading around our Bear Case, we reiterate our fair value range and Base Case of SEK52.

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I still haven’t kept a closer eye on this (either). Q3 numbers are out, and there doesn’t seem to have been any significant development. However, there were larger orders during Q3, which bodes at least slightly better for the future.

Interim report for the period 1 January - 30 September 2022

July - September

  • Net sales amounted to SEK 76.1 (78.7) million, a decrease of -3.3% compared to the same
    period last year. Compared to the second quarter of this year (68.9), sales increased by 10.5%.
  • EBITDA amounted to SEK 19.2 (19.7) million, a decrease of -2.5% compared to the same
    period last year. Compared to the second quarter of this year (15.4), EBITDA increased by 25.0%.
  • EBITDA margin amounted to 25.3% (25.1%).
  • Profit after tax amounted to SEK 0.1 (1.9) million.
  • Earnings per share amounted to SEK 0.01 (0.19).
  • Cash flow for the period amounted to SEK -0.3 (-11.4) million.

January - September

  • Net sales amounted to SEK 208.0 (209.4) million, a decrease of -0.7% compared to the same
    period last year.
  • EBITDA amounted to SEK 43.9 (44.7) million, a decrease of -1.7% compared to the same
    period last year.
  • EBITDA margin amounted to 21.1% (21.3%).
  • Profit after tax amounted to SEK -9.6 (0.6) million.
  • Earnings per share amounted to SEK -0.93 (0.06).
  • Cash flow for the period amounted to SEK -7.8 (20.8) million.

CEO’s statement
During the third quarter of the year, SDS’s business operations continued at a high level. We have secured several new deals, with the breakthrough deal with Sudatel for three markets simultaneously being the highlight of the quarter.

Edit:

Redeye’s comments are also attached

Management commentary states that results are starting to recover from the soft H1 2022 levels and that it is building an attractive pipeline. It has, among other things, finalized large implementations of new products and completed the transition to a modern tech architecture (microservices). Both of these have taken longer than expected. This lays the foundation for future growth, margin expansion, and improved cash flows.

SDS’s operations appear to progress well throughout H2 2022. It announced (1) its largest ever agreement together with Sudatel Group (more on here), (2) a SEK10m agreement with a Saudi telecom group, the largest market in the Middle East (more on here), and (3) a SEK3.4m order for its Smart Sales & Distribution product from an existing Sudanese customer.

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