Zutec - Small but Interesting Digital Play in Construction

Zutec has a scalable business model with long-term potential for high margins in an accelerating market. We believe it is well exposed to a major market shift towards digitalisation in the construction sector.

• Zutec develops and sells software for project management to companies in the construction sector, with clear value-adding qualities, such as efficiency, cost control and data collection. The construction sector is ranked the second worst in the Digitalisation Index. Given the traditionally manual nature of the sector, when new software is introduced to digitalise processes it can prove very disruptive initially. Larger players starting to consolidate and national guidelines regarding BIM (Building Information Modelling) indicate an acceleration in digitalisation, which is driving the market in the right direction for Zutec.
• Focus on large projects, but the next large step is in volume sales to SMEs. Zutec is traditionally focused on large construction projects, but recent investments have been in developing the software towards SMEs (small-to-medium enterprises) in order to enable volume sales. We believe this provides strong potential and that it forms the main aspect of the Zutec investment case. It could increase scalability, the share of recurring revenues, diversify risk exposure and enable Zutec to lift revenues.
• Still early on. The main risk is that Zutec is still early on in its journey. Key to its success will be if it can prove successful in building an organisation as well as increasing volumes over time. The majority of the business as it is today is dependent on large contracts that can add volatility to sales when they end.
• Valuation. Currently valued at 4.5x 2018E EV/sales compared to 6.0x EV/sales for the Nordic software sector, we believe the current valuation is attractive given long-term high growth and opportunities for high profit margins. We have a valuation range of SEK27- 33/share, which is based on a 10-30% discount to peers on our 2019/20 sales estimates. The discount is warranted given the higher risk, in our view.

For further information, please contact:

Brendan O’Riordan CEO of Zutec Holding AB; brendan.oriordan@zutec.com

About Zutec Holding AB

Zutec develops and markets cloud-based software solutions, primarily directed to companies within the building and construction industry. The Company’s products help clients to increase their productivity and cost efficiency. Zutec provides solutions within project management, data and document collaboration tools, data enriched 3D-models, defect management, project handover and the operations and maintenance of buildings.

To find out more please visit www.zutec.com