Improving Fundamentals, Falling Valuation: Bright Future (16,9% forward IRR, Dutch small cap quick pitch)
Going upmarket, growing recurring revenue streams and strong cash generation at 13x EBIT
Hey there,
Today, I’m looking at a high-quality European small-cap company, a leader in several niches with a continuous shift towards higher recurring revenue and an asset-light operating model. The company is trading at a cheap valuation, has strong competitive advantages and is shareholder friendly by returning all excess capital as dividends. It is focused on gaining and retaining market leadership in its niches and focused on organic growth by developing new technologies, scaling them and capturing value. Let’s dive into it.
Why is it interesting now?
Recurring revenue has been the holy grail of investing for quite a while and often a company transitioning to a recurring revenue model will see a large spike in valuation multiple. Sometimes these moves go unnoticed or overshadowed by other things going on. In this case:
Scaling out of less lucrative legacy businesses→shadowing revenue growth
Increased investments to expand the product portfolio to seize on opportunities and increase recurring revenue→keeping margins low
Recurring revenue grew at a 17% CAGR and gross profit expanded by 800 bps over the last 5 years. Now is the perfect time to look closer.
A Proven, Profitable Growth Engine
This is a mission-critical hardware/software model with deep customer lock-in:
✅ Recurring revenue makes up >1/3 of sales and growing twice as fast as non-recurring
✅ They’ve already achieved ROIC around 30%, with room to scale further
✅ Organic growth focus—no empire-building M&A spree (but not opposed to sensible M&A)
✅ Low debt with an asset-light business model
Here are some key stats:
EBIT margin <10% with strong margin expansion opportunity
Diversified into four revenue streams
Churn: low, 99% and 98% in two of the segments
5-year revenue CAGR: 19%
4% insider ownership with active participation schemes for employees
The market doesn’t seem to value a lot of the improvements that happened yet. Let’s dive into this pitch!
What’s next?
The full premium pitch covers the following:
🔍 How the company makes money
⚙️ What drives scalable, capital-efficient growth
⚠️ The key risks to watch
📈 How they can deliver a 17%+ IRR from here
🔥 I recently made my deep dive into Ashtead Group free—so you can see exactly what to expect: Business model deep dive - Fundamentals and Valuation deep dive
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