Strong underlying growth in the market for ECM products. Gartner estimates that the market for ECM products are expected to grow at 10-15% CAGR globally and 5-10% CAGR in the Nordics, over the period 2018 to 2021. FormPipe is positioned to capitalize on this growth due to its market leading position and high quality solutions. FormPipe’s revenue is expected to grow at 4,6% CAGR between 2017 to 2021.

Migration towards a larger share of licensing revenue from SaaS is expected to increase margins. Between 2017 and 2021, licensing revenue from SaaS are expected to grow at 19,3% CAGR. As SaaS constitutes a larger share of licensing revenues, EBIT margins are expected to improve from 9,6% to 18,7% over the same period. This is because less personnel are required to implement the software when a larger share of the licensing are cloud-based.

Net cash position of 7 MSEK allows for acquisitions. Since the acquisition of Traen Group in 2012, debt has steadily been repaid while cash has been accumulated. This creates a strong financial position and improves opportunities for acquisitions. Acquisitions are a part of FormPipe’s growth strategy. FormPipe is well positioned to grow through acquisitions in the fragmented ECM market.

A 50/50 split of the DCF and relative valuation indicate an upside of 13%. The DCF valuation with a WACC of 10,31% and 2% terminal growth rate yields an implied price per share of 26,03 SEK. Additionally, a target 2019E EV/EBITDA multiple of 10,21x with forecasted 2019E figures results in an implied share price of 22,86 SEK. Assigning equal weight to both valuation methods yields an implied price per share of 24,44 SEK, an upside of 18,7% compared to FormPipe’s closing price of 20,60 SEK on November 22, 2018.

Analysts: Jimmy Enhammar and Christopher Carlsson