Norwegian Data Respons
About two years ago Fondita Nordic Micro Cap invested in the Norwegian company Data Respons. Today Data Respons is Fondita Nordic Micro Cap’s largest investment and is a good example of a company that fulfils Fondita’s investment criteria. The company works with technology and IoT solutions and has a deep knowledge in both areas. The company has a loyal customer base in the Nordic countries and Germany in several different industries. In other words the company is well diversified when it comes to customer relations. Data Respons is often involved in the customer’s research and development projects, which in many cases are multiannual. The entry barriers to competitions are high and it is difficult to find high enough competence.
The company supplies everything from sensors and mobile applications to other technical solutions. The technical solutions can be solutions for the sharing economy, the next generation of cars, medical aids, energy savings in buildings or even technical aids for learning. The common thread is found in the digital transformation in the form of connectivity and automation that is advancing everywhere in society.
The research company Gartner estimates that 75% of all business operations will be digitized or begin a digital transformation by 2020. The number of connected devices are expected to be multiplied in the next few years. Data Respons has the opportunity to play an important role in this transformation and win a lot of deals. Data Respons has grown by an average of 17% in recent years (source: Data Respons) which includes both successful acquisitions and organic growth. In practice, the company doubles at approximately 4 years apart, assuming the same growth rate. The growth rate looks set to continue, given future acquisitions and strong driving forces.
The acquisitions will both follow geographical foot trails and competence resources related to technology which creates synergies with the rest of the company or provide new business opportunities. At the same time the profitability increases and the company sells a larger number of technical solutions and software. This has resulted in having the highest profitability per consultant in the sector and a return of capital employed (ROCE) of around 20%. This year has started out well with a strong growth and an increasing profitability. Management and insiders recently acquired more shares in the company which is a positive signal.
The company has a strong cash flow and delivers a dividend of 3.5 % to its shareholders. When we acquired shares in the company, it was relatively undervalued compared with other companies in Europe and the Nordic countries. Today we believe the company’s growth opportunities justify a valuation premium to the sector, given continuous high growth and strong prospects. Data Respons fits well into Fondita’s investment philosophy since it has a strong position in its niche and a proven business model. The company manages to benefit from the structural growth that digitalisation brings. The company continues to develop their sustainability principles, which point out that new technology enables sustainable development since the technology contributes which smarter and greener solutions. We still see the company as an interesting investment in our portfolio and believe Data Respons is well positioned to be a part of the transformations taking place today.
Markus Larsson, CEO and Portfolio Manager