Investment Thesis on Powersoft S.p.A.
Powersoft S.p.A. a wonderful Italian Small Cap trading at an undervalued price
Introduction:
Powersoft S.p.A., headquartered in Scandicci, Italy, operates in the technology sector, specifically in consumer electronics. The company specializes in pro-audio amplifiers, with its products vital for various industries including hospitality, entertainment, and corporate sectors.
Price/Earnings: 15.8
Total Enterprise Value ("TEV")/EBIT: 7.3
Price/Book: 5.4
Forward P/E: 14.2
TEV/(EBITDA-maintenance cap/ex): 7.3
Price/Free Cash Flow: 22.2
Price/Sales: 2.11
Return on Equity and/or Assets: 38.4
TEV/Sales: 2.13
Powersoft stands as a distinguished leader in developing advanced, patented technologies and solutions tailored for the professional audio industry. This company excels in creating pro-audio power amplifiers, essential components that amplify the electric signals for loudspeakers. Their main products include rack amplifiers for both touring and permanent setups, along with amplification modules for integration into active loudspeakers by OEMs. These products constitute over 90% of their sales. Additionally, they offer safety multimedia devices, sound controllers, and transducers.
With an estimated 6% market share in their primary field of rack amplifiers, Powersoft is a prominent figure globally. Its competitive landscape features IcePower from Germany and Pascal from Denmark, specializing in professional module amplifiers. Other rivals include larger conglomerates like Lab.Gruppen, now part of Music Tribe, and Crown, a Harman company under Samsung. Integrated mono-brand groups like Bose Professional, Panasonic, Yamaha, Ashly, and QSC also provide competition.
Powersoft's technologies are trademark-protected, and the company places significant emphasis on innovation, dedicating around 7-8% of sales to R&D over the past five years, with 30% of its workforce engaged in this area. The company boasts robust ties with leading clients like Pioneer, Bose, and Panasonic, and supplies module amplifiers to top loudspeaker brands like L’Acoustics and d&b Audiotechnik.
From 2016 to 2019, Powersoft grew faster than its market, driven by continuous investment in product innovation, expansion, and a strengthened global distribution network. It is expected to maintain this growth trajectory, projecting a 16% revenue compound annual growth rate from 2022 to 2025, particularly in the Americas and the Asia-Pacific region. Increased production and cost efficiencies are anticipated to boost EBITDA growth, exceeding revenue growth with margins expected to reach above 26% by 2025, up from 14.5% in 2020.
In 2021, Powersoft embarked on a new strategic phase, evolving from merely supplying products to offering comprehensive solutions for installers, and expanding from high-power installations to the broader market of smaller commercial setups. The company has been intensifying its distribution network in the US and China, the two largest markets anticipated to comprise over 40% of the total Professional Amplifier market by 2025.
Powersoft is considering mergers and acquisitions to optimize its capital structure, boost growth, and enhance competitive positioning, with an estimated investment capacity of over €30 million. The dividend policy might also be significantly revised as an alternative or complement to M&A strategies.
As a pioneer in the professional audio sector, Powersoft continues to focus on developing new products and solutions, exploring opportunities to expand its product range and penetrate new markets.
1. Strong Financial Health:
Powersoft's financials are robust and promising. In 2022, the company reported a significant leap in sales, going from EUR 33.34 million to EUR 48.21 million. More impressively, its net income surged to EUR 6.35 million from EUR 2.26 million a year earlier. This isn't just growth; it's a demonstration of financial resilience and operational efficiency.
2. Valuation Indicators:
The P/E ratio for Powersoft in 2024 is forecasted at an attractive 14.2 times. This, coupled with an NTM EV/EBIT of 7.3 for the same year, presents an investment that’s not only profitable but also incredibly undervalued. 2-year forward growth projections have EBITDA CAGR at 26.6% and EPS CAGR at 37.2%. These growth assumptions are bolstered by the fact that the Last 3-Yr EBITDA and EPS CAGR were 24.5% and 26% respectively. Historical efficiency rations of ROA: 20.7%, ROE of 38.4% and ROIC of 46% show that the company is extremely good at capital allocation.
3. Market Position and Expansion:
Powersoft isn't just selling amplifiers; it's carving a niche in energy-efficient audio technology – a field that's increasingly relevant in today's environmentally conscious market. The firm's focus on innovation and quality sets it apart from its competitors. Recent strategic moves, like the acquisition of shares by Lepri Pollitzer's company, signal growing investor confidence and an expanding footprint in the market.
Catalyst:
Powersoft S.p.A. distinguishes itself in the audio technology industry as an innovator, a fact underscored by their recent groundbreaking project at the Sphere in Las Vegas, a revolutionary entertainment venue. In this project, Powersoft delivered a groundbreaking audio experience with 167,000 audio channels of its energy-efficient amplification and state-of-the-art haptic technology integrated into 10,000 seats, creating an immersive, multi-sensory experience for the audience.
The Sphere's sound system, powered by Powersoft, is lauded as one of the most advanced concert-grade audio systems in the world. It is specially designed for the Sphere's unique curved interior, utilizing Powersoft's compact, ultra-efficient 16-channel amplifiers. These amplifiers are a part of the venue's innovative HOLOPLOT X1 audio system. Key to their efficiency is Powersoft's implementation of advanced technologies such as Power Factor Correction (PFC) and Class-D PWM (Pulse Width Modulation). These technologies enable the system to achieve approximately 40% energy savings compared to traditional amplifiers, significantly reducing environmental impact without sacrificing sound quality.
Furthermore, the Sphere's seats are equipped with Powersoft’s Mover technology, a groundbreaking infrasound haptic system. This system allows for an even more immersive experience by enabling event-goers to physically feel the performance through ultra-low-frequency sound reproduction. The integration of this technology transforms the listening experience from merely auditory to a full-body sensation, enhancing the overall impact of the performance.
This venture into the Sphere project not only demonstrates Powersoft's ability to handle large-scale, innovative projects but also reflects their commitment to sustainability, efficiency, and cutting-edge technology. Their involvement in creating the core technology for the world’s most advanced audio system in a high-profile venue like the Sphere in Las Vegas stands as a testament to their industry leadership and technological expertise.
Moreover, Powersoft's shift towards a high-margin services business, moving beyond traditional hardware sales, is evident in this project. It highlights their foresight in adapting to the changing dynamics of the audio technology market and their ability to deliver high-quality, sustainable solutions that shape the future of live entertainment.