Addtech: Compounding Through Niche Leaders

Addtech is a Swedish group of about 150 small companies that sell technical products and solutions to the manufacturing and infrastructure sectors. Its businesses cover areas like automation, electrification, energy, industrial solutions, and process technology, offering products such as sensors, battery systems, power transmission equipment, and tools that help reduce emissions. The structure allows each company to stay entrepreneurial and close to its customers while benefiting from the financial strength and resources of the larger group. This model has helped Addtech deliver steady growth and profitability over time. With demand rising from big trends like electrification, the energy transition, and digitalisation, the company looks well positioned for the future. The question is: Should Addtech be part of your portfolio?

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me. 

For full disclosure, I should mention that I do not own any shares in Addtech at the time of writing this analysis. If you would like to copy or view my portfolio, you can find instructions on how to do so here. If you want to purchase shares or fractional shares of Addtech, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

Addtech is a Swedish group of technology companies that was spun off from Bergman & Beving in 2001. It brings together about 150 entrepreneur-led subsidiaries, each specializing in high-tech products and solutions mainly for manufacturing and infrastructure customers. The group operates in five areas: automation, electrification, energy, industrial solutions, and process technology. Across these areas, its companies provide everything from automation systems and sensors to custom battery packs, energy transmission equipment, special vehicle components, and solutions for improving industrial processes and reducing emissions. Addtech’s role is to act as a bridge between technology suppliers and industrial customers. Instead of just selling products, its companies adapt and combine technologies, including both third-party products and their own brands, so customers can produce more efficiently, strengthen their competitiveness, and move toward more sustainable operations. The company’s competitive moat is rooted in its decentralized structure, which gives subsidiaries the autonomy and agility of small businesses while allowing them to benefit from the financial strength, networks, and long-term perspective of the group. By focusing on carefully selected niches with high technical content, the subsidiaries position themselves as trusted partners that provide solutions rather than just products. This creates sticky customer relationships and supports strong margins. Diversification across industries, customer segments, and geographies provides resilience, as no single client or sector dominates the business. Addtech also has a long track record of successful acquisitions, continuously expanding into new niches and regions without diluting the entrepreneurial spirit of its companies. Finally, its portfolio is aligned with structural growth trends such as electrification, energy efficiency, and emission reduction, which supports long-term demand. Together these factors give Addtech a durable moat and make it a proven compounder in the Nordic industrial technology space.

Management

Niklas Stenberg serves as the CEO of Addtech, a role he assumed in 2018. He has extensive experience within the company, having joined Addtech in 2005 and held several senior management positions before becoming CEO. Prior to leading the group, Niklas Stenberg was a Business Area Manager, where he gained hands-on experience overseeing multiple subsidiaries and driving growth in specialized technical niches. His career has been defined by a deep understanding of Addtech’s decentralized and entrepreneurial business model, which emphasizes giving subsidiaries the independence to grow while benefiting from the resources and networks of the larger group. Niklas Stenberg holds a Master of Science in Engineering from the Royal Institute of Technology in Stockholm. Under his leadership, Addtech has continued to expand internationally and strengthen its position in selected niches, combining organic growth with a disciplined strategy of acquisitions. He is recognized for fostering a culture of responsibility and entrepreneurship, ensuring that the group’s companies maintain their agility while pursuing long-term profitable growth. As CEO, Niklas Stenberg has also placed a strong emphasis on sustainability, aligning Addtech’s offerings with the global transition toward electrification, energy efficiency, and reduced emissions. His leadership style is described as pragmatic and forward-looking, with a focus on enabling the subsidiaries to thrive while guiding the group as a whole toward sustainable value creation.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year.  Addtech has consistently achieved a high ROIC, staying above 15% in every year except fiscal year 2021, which was affected by the pandemic. In the past three years, ROIC has been above 17%, which is well above the threshold most investors consider attractive. The reasons behind this performance are structural. Addtech’s subsidiaries operate in carefully chosen niches where technical know-how and customization matter more than scale. This allows the companies to charge for value-added solutions rather than compete on price alone. Because these businesses are not capital intensive, they can generate strong margins without tying up large amounts of capital in factories or heavy equipment. The decentralized structure also plays a role: subsidiaries act with the speed and customer focus of small companies while drawing on the group’s resources, networks, and long-term financial strength. This combination of low capital requirements and strong pricing power translates directly into consistently high ROIC. Another factor is Addtech’s disciplined acquisition strategy. The group has a long history of buying small, profitable companies at reasonable valuations, often founder-led and operating in fragmented markets. These acquisitions typically require modest capital but quickly add to earnings, which helps sustain high ROIC at the group level. Looking ahead, it is reasonable to expect Addtech’s ROIC to remain at a structurally high level. The company is well diversified across industries, customers, and geographies, which provides resilience when some markets slow down. It also has exposure to long-term trends such as electrification, automation, and energy efficiency, which should support continued demand for its solutions. While ROIC is unlikely to increase significantly from the current 17% range, the consistency of these returns is a competitive strength in itself. Maintaining high and stable ROIC over time is often more valuable than short-term improvements, and Addtech has built a model that appears well positioned to deliver exactly that.

The following numbers represent the book value + dividend. In my previous format, this was The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year.  I don't have the growth rate from 2014 to 2015 as Finbox only provides data for the past ten years. Addtech has managed to increase its equity every year thanks to a mix of strong profitability, efficient use of capital, and steady acquisitions. The group’s subsidiaries generate high ROIC, which means profits are consistently reinvested and build up the company’s value. Acquisitions also add to this growth by bringing in new businesses that contribute additional earnings, while the company keeps its debt at a manageable level. This steady flow of profits and careful financial management explains why equity has never declined. Looking ahead, the same drivers remain in place. Addtech is active in industries with long-term growth such as automation, electrification, and energy efficiency, and it continues to acquire new companies without putting too much strain on its finances. For that reason, it is reasonable to expect equity to keep increasing in the years to come.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. Addtech’s free cash flow reached record levels in fiscal year 2024 and then again in fiscal year 2025. This was driven by a combination of higher earnings, limited investment needs, and strong cash conversion. Demand in areas such as automation, electrification, and energy efficiency lifted profits, while the businesses in the group required relatively little spending on factories or equipment to keep growing. In both years, Addtech also freed up cash that had previously been tied up in inventories and customer payments, which meant that an unusually large share of profits was converted directly into free cash. Together, these factors explain why free cash flow hit record highs and why free cash flow margins have been at the upper end of their historical range in the past two years. The free cash flow is mainly used for acquisitions and dividends. Shares outstanding have remained relatively stable, so buybacks are not a major use of cash. Dividends, however, are a consistent part of Addtech’s capital allocation. The dividend was SEK 2,80 per share in fiscal year 2024 and has been proposed to increase to SEK 3,20 per share for fiscal year 2025, showing that management is confident in the company’s continued ability to generate strong cash flow. Looking ahead, free cash flow is expected to remain strong and likely continue to grow over time, supported by structural demand trends, disciplined acquisitions, and the group’s asset-light business model. For investors, this suggests that dividend payments are likely to keep rising in the future. Free cash flow yield is at its third lowest level in the past decade, which suggests that the shares are currently trading at a premium valuation. However, we will revisit valuation later in the analysis.

Debt

Another important aspect to consider is debt. It is crucial to assess whether a business has a manageable level of debt that can be repaid within a three-year period, calculated by dividing total long-term debt by earnings. Upon analyzing Addtech’s financials, the company currently has 2,3 years of earnings in debt, which is below the three-year threshold. Hence, debt is not a concern for me if investing in Addtech. Looking ahead, I do not expect debt to become a concern either. The company generates strong cash flow, which gives it the ability to both service existing debt and fund future acquisitions. Addtech also has a long history of keeping its balance sheet under control, only taking on debt when it makes sense for growth and keeping debt at a level that can comfortably be managed.

Support the Blog

I want to keep the blog free and accessible for everyone. If you enjoy the content and would like to support it, you can buy me a cup of coffee through PayPal. Every little bit helps and is truly appreciated!

Risks

Macroeconomic factors is a risk for Addtech. The company’s customer base lies primarily in the manufacturing industry and infrastructure, sectors that are cyclical and tend to follow the broader economic environment. When interest rates rise or the economic outlook becomes uncertain, companies in these sectors often scale back or delay major investment projects. For Addtech, this translates into lower demand for products and solutions that depend on customers committing to long-term capital spending. The past financial year highlighted this sensitivity, as segments tied to construction such as electrical installation, machinery, and sawmill technology experienced weaker activity. Subsidiaries operating in these markets had to shift their focus toward cutting costs and safeguarding profitability rather than pursuing growth, essentially waiting for underlying drivers such as electrification and energy efficiency to reignite demand. Addtech’s demand is also directly influenced by factors outside of its control. Economic growth rates, the willingness of industries to invest in new equipment, access to affordable financing, and the overall stability of global trade all have a direct impact on its order flow. External shocks illustrate how vulnerable this setup can be. During the pandemic, customer investment decisions were put on hold almost overnight, and in 2022 Russia’s invasion of Ukraine once again disrupted confidence and spending across several markets. If Europe or the Nordics were to experience a prolonged downturn or a sharp drop in industrial activity, it would likely reduce Addtech’s order intake, particularly in business areas that depend on larger investment-driven projects. This could pressure both earnings and margins, even if other parts of the group tied to recurring sales and service remain more resilient.

Competition is a risk for Addtech. Most of the company’s subsidiaries operate in niche markets that, while profitable, are also exposed to competition from both established players and new entrants. In these markets, being able to adapt quickly to new technologies and shifting customer needs is critical. If Addtech were to fall behind in innovation or fail to anticipate changes in demand, it risks losing customers to competitors who can provide more advanced or more cost-effective solutions. Another factor is industry consolidation. If suppliers or competitors merge and create larger players with broader product ranges and stronger pricing power, Addtech’s subsidiaries could face greater pressure on margins. Larger consolidated rivals may be able to undercut prices or lock in customers with more comprehensive offerings. Price competition is also a constant challenge. Many of Addtech’s subsidiaries try to differentiate by offering technical expertise, reliable service, and tailored solutions, but in markets where customers are highly price-sensitive, low-cost competitors remain a threat. If customers decide to switch to cheaper alternatives, some subsidiaries could lose market share even if their solutions offer higher quality or better service. In short, Addtech’s future competitive position depends on its ability to remain at the forefront of technological development, respond quickly to changing market needs, and maintain strong customer relationships. While the company has historically managed this well, competition and technological change are permanent risks that could weigh on growth, market share, and profitability if not managed carefully.

Supplier risk is a risk for Addtech. The company depends on external suppliers to deliver products with the right quality, in the right volume, and on time. If deliveries are delayed, incorrect, or fail to arrive, subsidiaries may be unable to meet customer orders, which can directly hurt both revenue and profitability. Because Addtech’s reputation is closely tied to reliability, repeated supplier problems could damage customer trust and make it harder to secure future business. There is also an ethical dimension to supplier risk. Addtech’s reputation depends not only on its own conduct but also on the practices of its suppliers. If a supplier is found to breach standards related to human rights, corruption, working conditions, or environmental responsibility, it could reflect poorly on Addtech even if the company is not directly responsible. This risk is more significant in cases where no formal written agreements exist, since unclear responsibilities can create legal uncertainty. Another risk is bargaining power. In certain niches, subsidiaries may depend heavily on specific suppliers. If those suppliers consolidate, grow stronger, or choose to bypass distributors and sell directly to customers, Addtech could lose influence in the value chain or be forced to accept weaker margins. Since supplier reliability, conduct, and strategy are ultimately outside of Addtech’s control, this risk will remain an important factor for the company going forward.

Reasons to invest

Favorable trends is a reason to invest in Addtech. The company operates in segments that are underpinned by powerful structural drivers such as electrification, automation, energy transition, defence, marine technology, and digitalisation. These are not short-term themes but long-lasting shifts that are reshaping industries across Europe and beyond. In recent years, Addtech has already benefited from strong demand in areas like electrical transmission, defence, marine, and data centers, and these markets are expected to remain robust as governments and companies invest heavily in energy infrastructure, security, and digital capacity. Electrification is one of the clearest opportunities. As industries and societies move toward lower emissions and a fossil-free future, demand is rising for batteries, power transmission, and energy-efficient equipment. Addtech’s companies are directly involved in providing these solutions, positioning the group to grow alongside the global transition to sustainable energy. Automation is another major driver. Trends like reshoring, digitalisation, and the application of AI are pushing manufacturers to make supply chains more efficient and production more competitive. Addtech’s subsidiaries have strong expertise in automation systems, sensors, and industrial IT, enabling them to help customers cut waste, reduce costs, and improve sustainability. The energy segment also benefits from major infrastructure investments. Expansion of electrical grids, renewable energy production, and stricter requirements for energy efficiency are creating long-term demand for Addtech’s advanced products and services. Regulatory trends, such as tighter safety standards and efficiency requirements, add another layer of support by creating markets where compliance drives spending. Beyond these, Addtech is also active in newer growth areas such as fibre-based materials, recycling systems, and technologies that help reduce emissions. In the marine and industrial sectors, stricter environmental rules and the need to use energy more efficiently are creating extra demand. This benefits Addtech’s process technology companies, which provide instruments and automation systems that help customers monitor and improve their operations, as well as advanced solutions like carbon capture and Power-to-X for producing and storing climate-neutral fuels.

Acquisitions is a reason to invest in Addtech. Buying new companies has always been a cornerstone of its business model, and since being spun off in 2001, the group has acquired more than 200 companies. The focus is on well-managed, profitable technical companies that operate in clearly defined niches and share Addtech’s culture of entrepreneurship and sustainability. These are not short-term plays but acquisitions with a perpetual ownership horizon, meaning Addtech integrates them into the group to grow for the long term rather than buying to quickly resell. In fiscal year 2025 alone, Addtech completed 12 acquisitions across Europe and beyond, adding around SEK 1,6 billion in annual sales with healthy margins. Most of these companies were slightly larger than in previous years and strengthened existing niche strategies in areas such as electrification, energy, automation, and industrial solutions. Examples include suppliers of high-voltage transmission equipment, analytical systems for energy and process industries, battery solutions, and specialised safety and automation products. This shows how acquisitions directly expand Addtech’s portfolio in growth markets driven by megatrends such as energy transition, automation, and sustainability. A key strength is that Addtech often sources acquisition candidates through its own networks, meaning the group knows the companies well before a deal is made. This reduces risk and helps ensure that entrepreneurs who sell their businesses are aligned with Addtech’s values and long-term vision. Looking forward, acquisitions will remain a major growth driver. Addtech has a solid balance sheet, generates strong cash flow to finance deals, and has built a reputation as a preferred buyer for entrepreneurs looking for stability and continuity. With a good pipeline of potential targets and increasing interest from companies outside the Nordic region, Addtech is well positioned to continue making acquisitions at a high pace in the years ahead.

Network effects is a reason to invest in Addtech. Although the company operates with a strictly decentralized structure, its subsidiaries benefit enormously from being part of a wider group. Each of Addtech’s 150 companies is a leader in its niche, but their value is multiplied when knowledge, expertise, and customer insights are shared across the group. This collaboration often happens naturally, as companies serving the same customer segments but with different products exchange best practices and work together on opportunities. The result is that the whole group becomes stronger than the sum of its parts. The decentralized model ensures that subsidiaries retain their entrepreneurial drive and independence, while at the same time gaining access to the scale and expertise of the broader network. Addtech supports this with formal structures such as the Addtech Academy, which trains hundreds of employees each year in areas like digitalisation, strategic pricing, and sustainability, embedding a common culture while raising capabilities across the group. Just as important, collaboration happens informally at the company level, with subsidiaries proactively sharing insights. By combining freedom with responsibility, Addtech allows its companies to stay flexible and close to their customers while also benefiting from shared resources, financial strength, and technical know-how from the network. This creates a powerful form of internal network effects: every new acquisition and every new initiative strengthens the entire group by adding new expertise, new customer relationships, and new opportunities for collaboration. This means that Addtech is not just a collection of small companies, but a platform where each subsidiary can grow faster and more profitably because it is part of a larger ecosystem.

Exclusive Discounts on Seeking Alpha – Elevate Your Investing Today!

For those serious about investing, here's your chance to upgrade your strategy with exclusive offers you won't find anywhere else. These special discounts are available only through the links below—don’t miss out!

1. Seeking Alpha Premium: Access comprehensive financial data, earnings transcripts, in-depth analysis, market news, and more. Perfect for investors who want an edge in making informed decisions.

   Special Price: $269/year (originally $299) + 7-day free trial.

   Sign up for Premium here.

   
   

2. Alpha Picks: Get stock recommendations from a portfolio that gained +177% compared to the S&P 500's +56% from July 2022 through the end of 2024.

   Special Price: $449/year (originally $499).

   Sign up for Alpha Picks here.

   
   

3. Alpha Picks + Premium Bundle: The ultimate investment package with a $159 discount!

   Special Price: $639/year (originally $798).

   Get the Bundle here.

   
   

I use Seeking Alpha daily for its reliable insights and actionable strategies. These deals are available exclusively through my links, so take advantage of them now to level up your investment journey!

Act quickly - these prices won't last forever!

Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 7,00, which is from fiscal year 2025. I have selected a projected future EPS growth rate of 15%. Finbox expects EPS to grow by 14,9% a year in the next five years. Additionally, I have selected a projected future P/E ratio of 30, which is twice the growth rate. This decision is based on Addtech's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be SEK 210,00. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Addtech at a price of SEK 105,00 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 2.709, and capital expenditures were 171. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 120 in our calculations. The tax provision was 575. We have 269,9 outstanding shares. Hence, the calculation will be as follows: (2.709 – 120 + 575) / 269,9 x 10 = SEK 117,23 in Ten Cap price.

The final calculation is called the Payback Time price. It is a calculation based on the free cash flow per share. With Addtech's Free Cash Flow Per Share at SEK 9,41 and a growth rate of 15%, if you want to recoup your investment in 8 years, the Payback Time price is SEK 148,54.

Conclusion

I believe Addtech is an intriguing company with strong management and a well-built moat created by its decentralized structure, which allows subsidiaries to act with the agility of small businesses while still benefiting from the group’s financial strength, networks, and long-term vision. The company has consistently delivered a high ROIC, a trend that is expected to continue, and in fiscal year 2025 it generated record free cash flow that is likely to grow further in the coming years. Risks remain, as macroeconomic factors such as high interest rates, recessions, or geopolitical crises can cause customers in manufacturing and infrastructure to delay investments, reducing demand for Addtech’s products and putting pressure on earnings and margins. Competition is another challenge, since its subsidiaries operate in niches where technological leadership and responsiveness to customer needs are essential, while consolidation and price pressure can threaten profitability. Supplier dependence also creates risk, as delivery failures, ethical lapses, or growing supplier bargaining power could harm revenue, margins, or reputation. On the positive side, Addtech is positioned to benefit from powerful structural trends including electrification, automation, and the energy transition, which support long-term demand for its solutions. Growth is further reinforced by acquisitions, where the company has a proven track record of integrating well-managed niche businesses for long-term value creation, supported by strong cash flow, a solid balance sheet, and a steady pipeline of opportunities. Finally, Addtech benefits from network effects within its decentralized model, as subsidiaries share expertise, customer relationships, and best practices, making the group stronger than the sum of its parts. Overall, I see Addtech as a great company and I will buy shares at SEK 237, which gives me a 20% discount to the intrinsic value calculated using the Payback Time method.

My personal goal with investing is financial freedom. It also means that to obtain that, I do different things to build my wealth. If you have some extra hours to spare each month, you can turn a few hours a week into a substantial amount of money in a few years. If you are interested to know how I do it, you can read this post.

I hope that you enjoyed my analysis. Unfortunately, I cannot do a post of all the companies I analyze. But you can follow me on Twitter instead, as I tweet when I buy or sell anything.

Some of the greatest investors in the world believe in karma, and in order to receive, you will have to give. If you appreciated my analysis and want to get some good karma, I would kindly ask you to donate a bit to ADEPAC. It is a charity I know first hand and I know they do a great job and have very little money. If you have a few Euros to spare, please donate here by clicking on the Paypal icon. Even one or two Euros will make a difference. Thank you.