StrongPoint ASA: Can Strategic Growth and Recurring Revenue Drive Margin Breakthrough?

StrongPoint ASA (STRONG.OL) delivered a strong Q2 2025 performance, with revenue surging 18% year-over-year to NOK350 million and EBITDA turning positive at NOK7 million, a dramatic improvement from a NOK9 million loss in the prior-year quarter. While the EBITDA margin of 2.1% remains below the company's long-term target of exceeding 10%, management's focus on recurring revenue growth and strategic project execution suggests the path to margin expansion is clear—if not yet fully realized. For investors, the question is whether the near-term margin pressures outweigh the potential of StrongPoint's software-driven retail tech model. Here's why the stock's current valuation may offer a compelling entry point.

Q2 2025: Revenue Growth Outpaces Margin Progress

The quarter's standout achievement was the 18% revenue growth, driven by dominant performances in core markets like the UK (up 45%), Sweden (up 39%), and the Baltics (up 24%). Recurring revenue—critical to long-term margin health—grew 16% on a rolling 12-month basis, fueled by the Sainsbury's order picking contract and self-checkout installations. This recurring revenue stream, now totaling NOK378 million, represents a structural shift toward predictable cash flows, a hallmark of SaaS-like businesses.

However, the EBITDA margin of 2.1% highlights execution challenges. Investments in strategic projects like the Sainsbury's rollout, CashGuard Connect in Spain, and AI scales for Nordic retailers have strained margins. Additionally, sales of third-party hardware like AutoStore, which carry lower margins, contributed to a slight dip in gross margin to 43.7% from 44.6% in Q2 2024. Management acknowledges the pace of margin improvement has been slower than hoped, but argues that operational discipline and scaling high-margin software solutions will eventually close the gap.

The Recurring Revenue Flywheel

StrongPoint's strategy hinges on transitioning from hardware-centric sales to recurring software revenue. The Sainsbury's order picking contract—a flagship win with a multi-year lifecycle—is a prime example. Once fully implemented by summer 2026, this project will generate recurring license fees and maintenance revenue, directly boosting margins. Similarly, the rollout of AI-powered scales in Nordic grocery chains and self-checkout expansions in the Baltics (e.g., Coop Estonia's 130 new units) are designed to lock in long-term customer commitments.

The company's SaaS-like model is also evident in its partnership with VusionGroup for electronic shelf labels (ESL). While progress here has been slower than hoped, the potential to bundle ESL with order picking solutions creates a compelling integrated offering for retailers—a competitive advantage over rivals like Walmart or Tesco, which lack similar tech ecosystems.

Key Projects: Catalysts for Margin Lift

Two projects stand out as pivotal to future profitability:

1. Sainsbury's Order Picking Rollout: Completion by summer 2026 will mark a major milestone. The contract's recurring revenue profile and the scalability of the solution to other UK retailers could transform StrongPoint's financial trajectory.

2. CashGuard Connect in Iberia: This cash automation system for Spain's largest grocery retailer is a high-margin opportunity. Once industrialized (testing is underway), it could replicate the success of the order picking model in Europe's second-largest retail market.

Both projects require upfront investment but promise lasting returns. Management's decision to capitalize NOK6.4 million on CashGuard Connect development reflects confidence in its long-term value—a bet investors should monitor closely.

Near-Term Risks and Valuation

The path to 10%+ margins is not without obstacles. Norway's revenue dropped 16% due to ESL market saturation, and the CashGuard project's delayed industrialization poses execution risks. Competitors in hardware sales (e.g., AutoStore's parent company) could also pressure margins if software adoption lags.

Yet the stock's current valuation appears discounted. At a price-to-sales ratio of ~1.2x (vs. 1.8x for European retail tech peers like Smile or Inghes), the market is pricing in near-term margin struggles. If recurring revenue continues to grow at 15-20% annually and margins improve to 5-6% by 2026, StrongPoint could see a valuation rerating to 1.5x+ sales—a 25% upside from current levels.

Investment Thesis

StrongPoint's Q2 results underscore a company transitioning from a hardware vendor to a software-driven SaaS leader—a process fraught with growing pains but richly rewarding for those who stay the course. The recurring revenue flywheel is gaining momentum, and strategic projects like Sainsbury's and CashGuard hold transformative potential. While margin targets remain distant, the stock's current valuation offers a margin of safety. For investors willing to look beyond the next 12 months, StrongPoint's leadership in European retail tech and its recurring revenue playbook make it a compelling long-term bet.

Recommendation: Buy for investors with a 2-3 year horizon, targeting a 10-15% total return as margin expansion and valuation re-rating take hold. Monitor execution on Sainsbury's and CashGuard milestones closely.