In short: REQ: a post-spin-off sum-of-the-parts. "Since 2003, Volati has compounded shareholder capital by building industrial businesses without issuing common equity. Following the spin-off of Salix, we believe the market now substantially undervalues what remains." Post-separation Volati generates SEK 4.3bn revenue and SEK 303m EBITA across five platforms, "of which Ettiketto accounts for roughly 75% of earnings"; the shares went from SEK 89 pre-spin to SEK 24.5 (Salix at SEK 64). Four pillars: "Ettiketto alone could ultimately be worth as much as Volati's current market capitalization"; normalised earnings in the other platforms are "materially higher" than depressed agriculture and construction volumes imply; Salix "demonstrated remarkable resilience through one of the most challenging construction markets in decades"; and the valuation "creates a compelling risk-reward." The core asset reframed: "the market appears… to value Volati as a cyclical industrial company, while we increasingly view Ettiketto as a high-quality compounder embedded inside one" — a self-adhesive-label roll-up with "17% EBITA margin" and a target of 20%, whose legacy Swedish business went "from the low teens to above 20%" after acquisition. Trades at EV/EBITA 15.5x; net debt 2.9x plus preference shares.
Volati is a Swedish group that buys small industrial businesses and improves them. Remarkably, it has done this since 2003 without ever issuing new ordinary shares — so every gain has accrued to existing owners rather than being diluted away.
In June it split in two, spinning off Salix. The market gave most of the value to Salix, and REQ think what remains is badly mispriced. The reason is concentration: one business, Ettiketto, produces roughly three-quarters of the remaining profits, and REQ argue it alone could be worth as much as the entire company's current market value.
Ettiketto makes self-adhesive labels and labelling machines, and has grown from a Nordic to a European supplier by acquisition. It has the features REQ look for in a serial acquirer: a fragmented industry with plenty of targets, repeat demand, good returns on capital, and a demonstrated ability to improve what it buys — the Swedish business it acquired in 2012 went from low-teens margins to above 20%.
The rest of Volati is currently earning below its potential because agriculture and construction have been weak, not because it has lost customers. REQ's summary of the mistake: the market prices Volati as a cyclical industrial company, when it is really a high-quality compounder hidden inside one.
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