Target acquired and locked on. Initiating coverage with BUY

Here, Scandinavian Astor Group (Astor), a industrial and defence serial acquirer, shows a strong track record of acquiring hidden champions with above average margins at attractive prices (six acquisitions for SEK 195m at only 6.3x EV/EBITDA at an average 17% EBITDA margin). Astor creates win-win situations and generates value by (1) professionalising operations, (2) qualifiying targets for defence and (3) offering traction and a broad customer network in a market with large entry barriers.

Following its accession to NATO, Sweden has almost tripled its defence spending ('24 vs. '21) and further aims to grow its defence spending by 7% p.a. from '24 -'30, which implies 2.6% of GDP. The ongoing discussions increase spending to 3% or more, highlights additional growth potential. As tier-1 suppliers, Astor's holdings are positioned in the first part of the value chain, but are in the last phase of the defence growth cycle, meaning that  their wave of growing order intake is about to arrive. This should lead to organic sales CAGR of 18% (FY'24-'27e), which is boosted by recent acquisitions to an overall 27% sales CAGR (FY'24-'27e). Group EBITDA should expand disproportionately at a CAGR of 58% (FY'24-'27e) thanks to (1) the acquisition of profitable targets, (2) subsequent operational improvements and (3) an improving fix cost coverage at holding level. Since foundation in 2022, the company is on track to roughly 8x its top-line reaching its guidance of SEK 400m sales until 2026.

In sum, Astor offers an unique opportunity to capture growth and the enormous potential of the Nordic defence sector. Valued at only 11.5x FY'25e EV/EBITDA, c. 50% below relevant peers, the stock offers an attractive entry opportunity. We initiate coverage with a BUY recommendation and PT of SEK 17.00, based on DCF.