Powersoft: The return of major events favorable to this high-powered audio specialist

After 6% annual growth between 2014 and 2019, the audiovisual market fell due to the confinements decided on a global scale in 2020.

For Guillaume Buhours, buy-side financial analyst at Gay-Lussac Gestion, the slowdown recorded in 2020 and 2021 contains the seeds of a powerful rebound of 7% per year from the low points of 2020, at least until 2025.

A good part of the population needs to relive collective events just like artists. However, it takes 18 to 24 months to prepare an event that brings together a large audience. Visibility is therefore high for the providers of these gatherings, such as restaurants, security services or manufacturers and rental companies of audiovisual equipment.

The market for audiovisual equipment suppliers is divided into two parts:

Fixed equipment installed in nightclubs, sports halls, churches
Mobile equipment intended for live events such as concerts, football stadiums or festivals.
The mobile equipment segment is represented by many listed players who make it possible to follow the activity of cultural events. The American Live Nation estimates that 70% of American millennials (the generation born around the year 2000) spend money to participate in live events compared to 55% before the Covid epidemic. 69% of them are even “very connected”.

The Italian SME Powersoft SpA provides organizers with rack amplifiers which are professional equipment in the form of boxes that can contain several stackable elements. Powersoft holds a 5% share of a market worth around 300 million euros. This market is relatively protected from large players such as Bose who do not find economic potential commensurate with their size.

An attractive market for small players, too small for the big players in the sector

Powersoft was founded in 1995 by three Italian engineers. It sells rack amplifiers and components for audiovisual systems. The customer base is very fragmented and includes world-renowned performance halls and festivals. Among Powersoft’s customers are the American Bose, Madison Square Garden in Las Vegas, the Olympique Lyonnais stadium and Coachella, one of the most famous festivals in North America.

Competitive advantages and barriers to entry

The company manufactures the critical components and purchases the other components. It relies on an R&D team which represents 30% of its workforce. Powersoft notably sells class D amplifiers whose 90% efficiency, compared to 40%-50% for class A and B equipment, allows it to sell portable speakers with a smaller footprint.

Financial fundamentals

Powersoft has historically outperformed the market with annual growth of 10% against 6% for its competitors on average. The group has held up better during the pandemic thanks to its lesser exposure to live events. The EBITDA margin, which was at 16% in 2019, just fell to 14.5% during the pandemic.

Revenue and margin growth prospects

Revenue growth should accelerate, according to Guillaume Buhours. Margins should also grow thanks to lower transport costs, improved supplies of semiconductors and the progression of services via software.

Thanks to its strong relationships with its customers and the quality of its distribution network (110 countries, more than 65 partners), Powersoft intends to strengthen its international presence, particularly in the United States and China.

The leaders of Powersoft are betting on internal growth and external growth which they can largely finance thanks to the twenty million euros available in the treasury.

Valuation

Over 2023, the company is currently valued at 3.9 times EBITDA and 5.2 times EBIT, with a P/E of 11 times and a free cash flow yield of 9%.

These levels interested B & C Speakers, another listed Italian company headquartered in Florence. Even if the talks did not succeed, the family which controls Powersoft wishing to remain independent, Gay-Lussac observes that the trades of each are complementary. Bringing the two companies together would produce significant synergies.

Guillaume Buhours notes that the company’s management has declared share purchases to CONSOB, the Italian financial market regulator. These latest purchases of securities are reassuring since they were made at a price higher than the current price (Powersoft quoted 4.6 euros on December 5, 2022)

Among the risks are the low liquidity of the stock, which is due to the narrowness of the free float, the possible return of confinements and an economic recession.

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