SP Group: A High Quality Industrial Compounder

SP Group is a leading Nordic manufacturer of specialized plastic and composite solutions, serving customers within Healthcare, Cleantech, Foodtech, and other industrial markets. Known for its broad range of production technologies, its own niche products, and long term customer relationships as a trusted manufacturing partner, the company combines technical expertise with a decentralized business model and a growing global footprint. With continued investments in acquisitions, new production capacity, and higher margin own products, SP Group aims to strengthen its position as a preferred partner in specialized plastic manufacturing while driving long term profitable growth. The question remains: Does this industrial company deserve a spot in your portfolio?

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The Business

SP Group is a Danish industrial company that has developed into one of Northern Europe’s leading manufacturers of advanced plastic, polymer, and composite solutions. The company serves customers primarily within Healthcare, Cleantech, Foodtech, and other industrial end markets, where it develops and manufactures specialized components and products that are often mission critical to customer operations. Its business model is built around two distinct revenue streams. The first and largest is sub-supplier work, which accounts for roughly 73% of revenue. In this part of the business, SP Group acts as a development and manufacturing partner for other companies. Customers approach SP Group with a specific need, such as a plastic component for medical equipment, industrial machinery, pharmaceutical packaging, or wind turbine solutions, and SP Group helps design, engineer, and manufacture the finished part. These products are typically sold under the customer’s own brand and become embedded in the customer’s product or production process. This often leads to long-term recurring relationships because once a component has been approved and integrated into a customer’s system, switching suppliers can be costly and operationally disruptive. The second revenue stream, which represents around 27% of revenue, comes from SP Group’s own niche products. Here, the company develops, owns, and sells specialized products under its own brands directly to customers. Examples include Ergomat’s ergonomic mats for industrial workplaces, MedicoPack’s pharmaceutical packaging solutions, Dan-Fender’s maritime products, and agricultural ventilation components. This part of the business tends to offer higher margins because SP Group owns the product design, brand, and pricing. Together, these two revenue streams create an attractive balance between stable long-term manufacturing partnerships and higher-margin product businesses. The company supports this model through a broad portfolio of manufacturing technologies including injection moulding, vacuum forming, blow moulding, composite moulding, 3D printing, machining, and other advanced polymer solutions. This technological breadth allows SP Group to act as a full-service partner from early-stage design and prototyping to large-scale manufacturing, assembly, and logistics. A key strength of the business is its decentralized structure, where subsidiaries operate independently with their own technologies and customer relationships while the group focuses on capital allocation, acquisitions, and cross-selling synergies. Combined with a global footprint of more than 30 factories located close to customers, this enables fast response times, reliable delivery, and strong local customer relationships. SP Group’s competitive moat is primarily built on technological breadth, deep customer integration, scale within specialized plastic manufacturing, and a decentralized structure that keeps the company close to its customers. The most important advantage is its broad technological platform. Many competitors within plastics manufacturing focus on only one production technology, such as injection moulding, vacuum forming, or composite solutions. SP Group, by contrast, masters a wide range of advanced polymer and composite technologies including injection moulding, blow moulding, vacuum forming, reaction injection moulding, machining, 3D printing, extrusion, pultrusion, and composite moulding. This allows the company to act as a true problem solver for customers. Rather than being limited to one manufacturing method, SP Group can recommend the most efficient material, design, and production process for each specific component. This flexibility makes the company more valuable to customers and harder to replace than a single-technology supplier. Another key part of the moat comes from deep customer integration. In the sub-supplier business, SP Group often works closely with customers from the early design phase all the way through full-scale production. Once a component has been developed, tested, and approved, particularly in areas such as medical devices, pharmaceutical packaging, wind energy, or food production, changing supplier becomes both costly and risky. Customers would need to repeat testing, documentation, compliance approvals, and production validation, which creates significant switching costs. This is especially true in healthcare and other regulated industries where cleanroom standards, traceability, and strict quality control are essential. As a result, many customer relationships become long term and lead to recurring orders over many years. Scale is another important advantage. SP Group is among the leading suppliers in several niche markets across the Nordic region and Europe, particularly through businesses such as SP Moulding, SP Meditec, SP Medical, and SP Gibo. This scale creates purchasing advantages, operational efficiencies, and the financial ability to invest continuously in automation, tooling, and specialized production equipment. These investments help the company maintain high quality standards and competitive costs, which smaller competitors may struggle to match. The decentralized structure further strengthens the moat. Each subsidiary operates with its own management team and close customer relationships, allowing fast decisions and local responsiveness, while the group level focuses on acquisitions, cross-selling, and synergies. This means that a customer relationship built in one subsidiary can often expand into other technologies and solutions elsewhere in the group, increasing wallet share and reinforcing customer stickiness. In addition, SP Group’s own niche products add another layer to the moat. Brands such as Ergomat, MedicoPack, Dan-Fender, and SP Medical hold strong positions in their specialized markets. These businesses benefit not only from technical expertise but also from established customer trust, product reputation, and in some cases leadership positions in their niche categories. Finally, the company’s long track record of disciplined acquisitions and successful integration strengthens its competitive position over time. By acquiring specialized businesses and adding their capabilities to the wider SP platform, the company expands both its technology base and customer reach. This buy-and-build model, combined with local autonomy and group-wide synergies, has helped SP Group compound revenue and earnings while reinforcing the durability of its competitive advantages.

Management

Lars Bering serves as the CEO of SP Group, a role he assumed on 1 September 2024 after previously serving as Executive Vice President of the company since 2020. His appointment reflects a clear internal succession strategy and highlights the board’s confidence in continuity, operational excellence, and long term value creation. Lars Bering brings deep industrial and operational expertise to the role, supported by many years of experience within SP Group’s organization and a strong technical background. He holds a Master of Science in Engineering as well as a Graduate Diploma in Supply Chain Management, which aligns well with the company’s focus on advanced manufacturing, logistics, and close customer integration. Before becoming CEO, Lars Bering had already spent more than 15 years within SP Group, having joined the company in 2008. He initially served as Managing Director of Gibo Plast, one of the group’s important subsidiaries focused on large plastic components and specialized manufacturing technologies. In this role, Lars Bering gained direct hands on experience with customer relationships, production processes, and capital allocation at the subsidiary level. This operational experience is particularly valuable in SP Group’s decentralized business model, where local decision making and close customer proximity are essential parts of the company’s competitive advantage. Over time, Lars Bering took on increasing responsibilities across the group and became Executive Vice President in 2020, where he played a key role in driving operational synergies, group wide growth initiatives, and strategic development. Lars Bering’s long tenure within SP Group gives him a deep understanding of both the company’s culture and its decentralized operating structure. Unlike an externally hired executive who may require time to understand the organization, Lars Bering has spent years working across the group’s subsidiaries and understands how the different businesses interact, where synergies can be created, and how to allocate capital across a broad portfolio of niche industrial operations. This is especially important in a company like SP Group, where the ability to integrate acquisitions, cross sell technologies, and maintain strong local leadership teams is central to the investment case. His background suggests a leadership style rooted in operational discipline, engineering expertise, and long term execution rather than short term financial engineering. Since becoming CEO, Lars Bering has taken over leadership of a business that already has a strong foundation built over many years but still offers significant growth potential. His focus appears closely aligned with SP Group’s long term strategy of expanding within Healthcare, Cleantech, and Foodtech while continuing disciplined acquisitions and organic investments. Given his engineering and supply chain background, Lars Bering appears particularly well suited to lead a manufacturing focused industrial compounder where customer relationships, production efficiency, and technical capabilities are critical to maintaining competitive advantages. His leadership also supports continuity in the company’s decentralized model, as he has firsthand experience running one of its subsidiaries and understands the importance of empowering local management teams while driving synergies at the group level. Lars Bering appears to be a strong fit for SP Group’s next phase of growth. His deep internal experience, technical expertise, and proven track record within the company suggest that he is well positioned to continue building on SP Group’s strong operational foundations while expanding its presence in high value niche markets globally.

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. SP Group’s ROIC has generally been around 10% over the past decade, ranging from 7,7% to 14,9%. While this may not look exceptional at first glance, it is important to remember that SP Group operates in a capital intensive industry. The company needs to invest heavily in factories, moulding tools, cleanroom facilities, automation equipment, and specialized machinery across more than 30 production sites. This naturally means that a lot of money is tied up in the business, which keeps ROIC lower even when earnings are solid. In this context, a ROIC around 10% is actually quite respectable for a specialized industrial manufacturer. Several structural characteristics of SP Group’s business model help explain why returns on capital have remained around this level. First, the business requires significant ongoing investments in physical assets. To maintain technological leadership across injection moulding, blow moulding, vacuum forming, composites, machining, and 3D printing, the company must continuously reinvest in equipment, tooling, and production capacity. These investments are necessary to support customer requirements, maintain quality standards, and remain competitive in specialized end markets such as healthcare, cleantech, and foodtech. Second, acquisitions are an important part of the company’s growth strategy. When SP Group buys specialized businesses, the amount of capital tied up in the group increases immediately, while the earnings contribution and synergies often take time to fully develop. This can temporarily put pressure on ROIC even if the acquisition is strategically attractive. Third, parts of the business require meaningful inventories and customer specific production assets, which also tie up capital over long periods of time. The fact that ROIC has remained relatively stable around 10% despite continued growth, acquisitions, and capacity expansion is, in my view, one of the more encouraging aspects of the business. This suggests that SP Group has been able to reinvest capital at acceptable returns while expanding its global footprint and technological capabilities. The temporary decline to 7,7% in 2023 appears more likely to reflect a weaker year for earnings or temporary integration effects rather than a structural deterioration in the business. This is supported by the recovery to 11,5% in 2024 and 10,3% in 2025, which indicates that the underlying economics of the business remain healthy. Looking ahead, I would expect ROIC to remain around the current level with the potential for modest improvement over time. A realistic long term range could be around 10% to 12% if management continues to improve factory utilization, realize synergies from acquisitions, and increase the share of higher margin own niche products within the revenue mix. Healthcare and medical solutions in particular may support somewhat stronger returns because these areas tend to have stronger margins and greater customer stickiness. However, because SP Group will likely continue investing in new capacity, acquisitions, and technological capabilities, it is unlikely that ROIC will move dramatically higher in the near term. For a business of this nature, a stable double digit ROIC can still be considered a sign of quality and disciplined capital allocation.

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. As you can see from the numbers, SP Group has managed to increase its equity every single year over the past decade, which is a very encouraging sign and often reflects a business that is consistently profitable and able to reinvest earnings successfully. One of the main reasons SP Group’s equity has increased so steadily is its consistent profitability. The company has generated profits year after year, and a meaningful portion of these profits has been retained in the business rather than fully distributed. This retained capital strengthens the balance sheet and increases the value that belongs to shareholders. Another important factor is that SP Group has been able to grow both organically and through acquisitions over many years. As the company expands its revenue base, production footprint, and technological capabilities, the value of the business has also grown. This has been particularly visible through its expansion within healthcare, cleantech, and foodtech, as well as through its disciplined buy and build strategy. When these investments are successful, they contribute to higher earnings over time, which then supports further growth in equity. The strong development from DKK 429 million in 2016 to DKK 1.809 million in 2025 is particularly impressive. While the year over year growth rates naturally fluctuate, the direction has remained consistently upward. Some years, such as 2020, saw particularly strong growth, which likely reflects a combination of strong earnings and successful integration of growth investments. More recently, the growth rate has moderated to 6.6% in 2025, but it is important to note that management mentioned that equity was negatively affected by the repurchase of shares worth DKK 72,4 million. Without this, the growth in equity would likely have been somewhat stronger. The fact that equity has increased every single year for a decade tells me that SP Group has combined profitability with disciplined capital allocation. This is especially attractive for an industrial company because it suggests that management has been able to grow the business while maintaining financial strength. Looking ahead, I do think this can continue, although the growth rate may vary from year to year. As long as SP Group continues to generate profits, reinvest in attractive growth opportunities, and execute acquisitions successfully, equity should continue to trend higher over time. That said, future share repurchases, acquisitions, or temporary weaker earnings years may cause the growth rate to slow in some periods. However, given the company’s track record of consistent value creation over the past decade, I believe continued growth in equity remains a realistic expectation over the long term.

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. Looking at SP Group’s history, free cash flow has clearly been more volatile than what we often see in less capital-intensive businesses. This is not unusual for an industrial manufacturer and is largely a result of how the business operates. SP Group’s free cash flow can move significantly from year to year because cash generation is influenced not only by earnings, but also by how much money is tied up in inventory, customer payments, supplier payments, and investments in factories and machinery. One of the main reasons for the volatility is inventory levels. Management specifically highlighted that cash flow from operating activities fell from DKK 510 million in 2024 to DKK 393 million in 2025, mainly because more cash was tied up in goods on stock during the fourth quarter. This was driven by a very high activity level in Q4 and the expectation of continued strong demand going into early 2026. In simple terms, SP Group had to build up more inventory to support customer orders, and that temporarily reduced the amount of cash generated during the year. This explains why free cash flow decreased from 335 in 2024 to 211 in 2025 even though 2025 was still the strongest year in the company’s history in terms of revenue and earnings. So the decline in free cash flow was primarily driven by temporary cash being tied up in the business rather than weaker profitability. Another reason free cash flow can be volatile is that SP Group continues to invest significantly in growth. As a specialized industrial manufacturer, the company needs to invest in new machinery, production lines, cleanroom facilities, tooling, and capacity expansion. In 2025, the company also made a very large acquisition with Idé Pro, where DKK 653 million was used for the transaction, in addition to DKK 174 million spent on machinery and equipment and DKK 8 million on properties. These investments reduce free cash flow in the short term, but they are intended to support future earnings growth and stronger cash generation over time. This is an important distinction because a decline caused by growth investments is very different from a decline caused by a weakening business. The historical volatility also reflects the cyclical nature of industrial demand and the timing of customer orders. For example, 2017 and 2019 show very weak or near-zero free cash flow, while 2020, 2023, and especially 2024 show much stronger levels. This suggests that cash flow can be highly sensitive to production activity, customer inventory patterns, and investment cycles. However, the broader trend has been positive, with free cash flow generally moving higher over time despite these fluctuations. Looking ahead, I do expect free cash flow to increase over time, although it will likely remain somewhat volatile from year to year. Management has specifically stated that they are focused on improving inventory levels and reducing the amount of cash tied up in day-to-day operations in the coming years, which should help release some of the cash currently sitting in stock. If inventory levels normalize after the strong Q4 activity, this alone could support stronger cash flow in 2026. In addition, the Idé Pro acquisition should begin contributing more fully to earnings and cash generation as integration progresses. That said, because SP Group continues to invest heavily in growth and acquisitions, it is unlikely that free cash flow will develop in a perfectly smooth line. SP Group mainly uses its free cash flow in three ways. First, it reinvests in the business through machinery, new capacity, automation, and acquisitions to make the group bigger and better, as management has emphasized. Second, it returns part of the cash to shareholders through dividends and share buyback programs. The company has an explicit dividend policy of distributing around 15% to 25% of profit after tax and has also been active with share repurchases. Third, free cash flow is used to reduce debt, although the company is also willing to raise new debt when attractive acquisition opportunities arise. The free cash flow yield is at its lowest level in the past three years, but this is largely due to temporary factors that affected free cash flow in 2025, particularly higher inventory levels. At just under 5%, it suggests that the shares are trading around a fair valuation. However, we will revisit valuation later in the analysis.

Debt

Another important aspect to consider is debt. It is crucial to evaluate whether a company has a manageable debt level that can be repaid within three years, which is determined by dividing total long term debt by earnings. Analyzing SP Group’s financials, we find that the company has 3,41 years of earnings in debt. This is slightly above the three year threshold, but I do not view it as a major concern when we take management’s comments and the reason behind the increase into account. The main reason debt increased in 2025 was the acquisition of Idé Pro, which was the largest acquisition in the company’s history and added DKK 653 million to debt. In other words, debt did not rise because the underlying business weakened, but because management chose to invest in future growth through an acquisition that should strengthen the group’s capabilities and earnings over time. Management has also highlighted that their own target is to keep debt in a range equivalent to between one and three and a half years of earnings. This means that the current level still sits within the range they consider acceptable and gives them flexibility to pursue attractive growth opportunities. It is also encouraging that management explicitly stated that they believe the company maintains sufficient financial resources and liquidity to support both operations and strategy. They also emphasized that SP Group has long standing relationships with its financial partners, which provides additional confidence in the company’s ability to manage this level of debt. Looking ahead, management expects debt to gradually come down again by strengthening cash generation from operations and continuing to improve the business. Given that the increase was mainly acquisition driven rather than operationally driven, I think it is reasonable to expect this figure to improve over time if the Idé Pro acquisition contributes as expected. Therefore, while the debt level is slightly above my preferred threshold, it still appears manageable and does not currently suggest any major financial stress.

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Risks

Macroeconomic factors is a risk for SP Group because the company’s demand is closely linked to industrial production, customer investment activity, raw material costs, and the smooth functioning of global supply chains. When the broader economy weakens, customers often postpone investments, delay product launches, or reduce production volumes. Management has already highlighted that slowing order intake was seen in certain periods, particularly for the company’s own products, as growing uncertainty in global markets caused customers to become more cautious. We saw a similar pattern in 2023, where rising interest rates led to the postponement of a number of projects, and management noted that the same picture reappeared in 2025. During the second and third quarters, projects within Healthtech and Cleantech were postponed or paused due to uncertainty regarding tariffs and broader geopolitical conditions. This had a direct impact on revenue growth and forced management to reduce its growth guidance during the year. This is important because a growing share of SP Group’s own products is sold into larger projects, and even a small number of delays can have a noticeable impact on short term revenue and earnings. Another important macroeconomic risk comes from raw material inflation. Plastic solutions are heavily dependent on polymer materials, and these materials are ultimately linked to oil and energy prices. When oil prices rise sharply, the cost of plastic granulates and other input materials tends to increase as well. This can put pressure on profitability, especially if SP Group cannot pass on these cost increases to customers immediately. While the company has historically been able to adjust prices over time, there is often a delay between higher input costs and customer price increases. During that period, margins can come under pressure. This risk can be even more pronounced in the own product segment, where pricing may not be adjusted as quickly as in the sub supplier business. Management has also mentioned increases in transportation costs, which adds another layer of pressure during periods of inflation or supply chain disruption. Geopolitical tensions and tariff risks are another major concern for SP Group. Management has repeatedly pointed to uncertainty around tariffs, trade restrictions, and geopolitical instability as key reasons why customers delayed projects in 2025. This is particularly relevant given the company’s global footprint. SP Group sells products in 98 countries, operates in 13 countries, and sources raw materials from around the world. This means the company is highly dependent on well functioning global infrastructure and open access to markets. Any escalation in trade disputes, especially between Europe, the US, and Asia, could affect customer demand, disrupt supply chains, and alter competitive conditions. Tariffs can increase costs directly, while broader trade restrictions may slow the flow of components and finished products across borders. This uncertainty can also cause customers to pause investment decisions, which management already experienced in 2025. Finally, SP Group remains exposed to the normal economic cycle. If Europe or the global economy were to enter a deep recession, industrial production would likely slow, customer investment levels could decline, and order volumes would come under pressure. This would affect both revenue and earnings, as management itself has acknowledged. While sectors such as healthcare may offer some resilience, other areas such as cleantech, industrial components, and customer specific projects are more exposed to economic cycles.

Competition is a risk for SP Group because the company operates in a fragmented but highly specialized industry where many competitors focus on specific niche technologies or end markets. While SP Group benefits from its broad technological platform and decentralized structure, it still faces increasing competitive pressure, especially within its sub supplier activities. Management has already highlighted that competition has become fiercer in this part of the business, which puts direct pressure on margins. This is particularly important because sub supplier work accounts for the majority of revenue. In this business, customers often compare suppliers on quality, reliability, delivery times, and price. If competitors become more aggressive on pricing, SP Group may need to accept lower margins in order to protect customer relationships and maintain volumes. Another important aspect of the competitive risk is that many other plastics companies are specialists in niche areas. While SP Group’s strength lies in offering multiple technologies across many end markets, some competitors focus only on one area such as injection moulding, medical components, composites, or vacuum forming. These specialized competitors may have deeper expertise, lower costs, or stronger customer relationships within their specific niche. This can make competition particularly intense when SP Group is bidding for highly specialized projects. In addition, larger global industrial manufacturers may also compete aggressively in areas such as healthcare, cleantech, and foodtech, particularly in larger international tenders. Competition can also increase through industry consolidation. As the sector consolidates, larger competitors may gain greater scale advantages, stronger purchasing power, and broader customer reach. This can intensify price competition and increase the pressure on smaller or mid sized players to continue investing in technology, capacity, and acquisitions just to maintain their market position. SP Group itself has used acquisitions as part of its growth strategy, but the same trend can strengthen competitors as well. Another part of the competitive risk relates to people and expertise. SP Group’s business is heavily dependent on engineers, technical specialists, production experts, and local management teams with deep knowledge of plastics and advanced manufacturing. Management has explicitly highlighted that attracting and retaining qualified employees can be challenging, particularly in a competitive labour market. This becomes even more important as the company expands internationally and grows more complex. If SP Group is unable to recruit or retain the necessary talent, it could weaken its ability to win new projects, maintain innovation, and execute its growth strategy. The company also has an experienced workforce with long tenure, which is clearly a strength, but it also means there is a risk related to generational transition as senior employees eventually leave.

Customer concentration is a risk for SP Group because, despite having more than 1.000 active customers, a significant share of revenue is generated by a relatively small number of large customers. In 2025, the ten largest customers accounted for 49,4% of total revenue, while the twenty largest represented 57,6%. Most notably, two individual customers each accounted for more than 10% of total revenue. This means that changes in activity levels from just a few customers can have a meaningful impact on the company’s revenue, earnings, and factory utilization. If one of these customers were to reduce volumes, postpone projects, or move part of its business to another supplier, the effect on SP Group’s financial performance could be significant. This risk is particularly important because SP Group’s business model is built around long term customer relationships and customer specific production setups. While this creates customer stickiness, it also means that production capacity, tooling, and inventory are often aligned with specific customer needs. If a major customer reduces demand, some of this capacity may not be easily redeployed immediately, which can pressure margins and profitability. Management has also highlighted that a decline in activity among major customers can weaken the group’s negotiating power. In simple terms, when a few customers account for a large share of sales, those customers may have stronger influence over pricing, contract terms, and delivery conditions. Another important aspect of this risk is the increasing share of own products in the revenue mix. Management has stated that one of its strategic goals is to increase sales of its own products, which generally carry higher margins. While this is positive from a profitability perspective, it also means that changes in customer demand can have a larger effect on future earnings. This is because the loss or postponement of a large project in the own product segment can have a disproportionate impact on profits compared to the sub supplier business. Management has specifically noted that sales of own products are often linked to larger projects, and as these become a larger share of revenue, the timing of these projects can also create quarter to quarter volatility. Sector exposure also adds to the concentration risk. While Healthcare is generally more defensive and often supported by long term contracts and higher switching costs, parts of the Cleantech segment are more cyclical. For example, wind energy and larger industrial projects can be sensitive to interest rates and customer investment decisions. This was already visible in 2025, where project postponements affected revenue growth. If one of the larger customers in these sectors delays investments, it can materially affect SP Group’s results.

Reasons to invest

The portfolio of own products and sub-supplier work is a reason to invest in SP Group because it creates an attractive balance between higher-margin growth opportunities and stable long-term customer relationships. One of the most compelling aspects of SP Group’s business model is that it does not rely on only one type of revenue stream. Instead, the company combines its own niche products, which generally carry higher margins, with a large and growing sub-supplier business that provides recurring demand and deep customer integration. This mix gives the company both resilience and upside over time. The own products part of the portfolio is particularly attractive because it supports margin expansion and long-term growth. Management has highlighted that one of the main reasons EBITDA margins have improved from 12% in 2015 to 20,2% in 2025 is the increasing share of own products. These products, such as Ergomat’s ergonomic solutions and TPI-Polytechniek’s ventilation products, are developed and sold under SP Group’s own brands. Because the company owns the product design, customer relationship, and pricing, these products typically generate higher margins than sub-supplier work, where pricing competition is often more intense. Management has also made it clear that increasing the share of own products remains a strategic priority and expects this part of the business to continue growing over time. This is especially encouraging because it means future revenue growth may come with stronger profitability as the product mix shifts further toward these higher-margin businesses. Another reason this is attractive is the innovation potential within the own product portfolio. Management has repeatedly emphasized continued investment in new and innovative products, particularly within Healthcare, Ergomat, and TPI-Polytechniek. This helps SP Group stay close to customer needs and expand into new markets such as Asia and North America. New products can also open up entirely new revenue streams while strengthening customer relationships in existing markets. Because many of these products address specific industrial and healthcare needs, they often serve niche markets where competition is less commoditized and customer loyalty can be stronger. The sub-supplier business is equally important because it provides scale, stability, and long-term customer relationships. In 2025, sub-supplier work grew by 5,7%, which management described as the strongest organic growth in many years. This growth was driven by new contracts and strong demand in strategic areas such as Healthcare and Foodtech. What makes this especially attractive is that the company has been able to broaden its customer base, reducing dependence on a few very large customers. This strengthens the resilience of the business and improves negotiating power over time. The sub-supplier model also tends to create long-term relationships because SP Group becomes deeply integrated into customer production processes. Once a product has been developed and approved, customers often continue ordering over many years, creating recurring revenue streams. The combination of these two business areas is what makes the portfolio particularly attractive. The own products support higher margins and innovation-led growth, while the sub-supplier business provides recurring demand, strong customer relationships, and a broader customer base. Management has explicitly stated that maintaining a good mix between the two remains a core strategic focus. This balance reduces reliance on any single growth driver and gives the company multiple ways to create value.

Acquisitions is a reason to invest in SP Group because it has been one of the company’s most important drivers of value creation over the past 15 years and continues to strengthen both its capabilities and long term potential. Management has highlighted that SP Group has expanded consistently since the financial crisis through a combination of continued development of the existing business and more than 20 acquisitions. This is particularly attractive because it allows the company to expand faster than what the normal market development alone would suggest. By acquiring specialized plastics businesses with a strong strategic fit, SP Group is able to broaden its technology platform, expand its customer base, and strengthen its geographic footprint while reinforcing its position in niche markets. The recent acquisition of Idé Pro is a very good example of why this strategy is attractive. Completed in December 2025 at an enterprise value of DKK 700 million, management expects Idé Pro to contribute around DKK 450 million in revenue and DKK 100 million in EBITDA. This provides an immediate boost to revenue and earnings. More importantly, Idé Pro adds capabilities that SP Group did not previously have at the same level. Management described Idé Pro as one of the most skilled plastic companies in Denmark with a very high degree of digitalization, strong expertise in functional prototypes and low volume injection moulding, and, importantly, in-house tool manufacturing. This is especially valuable because SP Group has historically sourced most moulding tools externally, often from China. Bringing more of this capability in house increases flexibility, shortens time to market, and allows the company to control a larger part of the value chain. Another important reason acquisitions are attractive is the synergy potential. Management has already indicated that the integration of Idé Pro is progressing very well and that early cross selling opportunities have been stronger than expected. One of the most encouraging points is that there is very limited customer overlap between Idé Pro and SP Group’s existing customer base. This creates a clear opportunity to sell more products and services across both customer groups. In addition, management expects synergies in the range of DKK 20 million to DKK 25 million with full effect by 2027. These synergies come not only from cross selling, but also from expanding tool production capacity and leveraging Idé Pro’s capabilities across the wider SP Group network. The acquisition also strengthens SP Group’s global footprint. With Idé Pro, the company added India to its production network, which is strategically important both from a growth perspective and from a supply chain perspective. The Bangalore hub, which has been established for around 20 years, adds technical competencies and administrative support while also opening up new opportunities in Asia. This fits well with SP Group’s ambition to continue expanding its presence in attractive growth markets. What makes acquisitions especially attractive here is management’s strong track record. SP Group has repeatedly demonstrated that it can identify companies with a strategic fit, acquire them at fair prices, and integrate them successfully. Management has emphasized that they are not pursuing acquisitions simply for size, but rather businesses that make SP Group more skilled, broaden the technology platform, and create long term value. This disciplined approach reduces the risk often associated with acquisition led growth.

Capacity expansion is a reason to invest in SP Group because it supports long term growth, strengthens customer relationships, and improves the company’s competitive position in strategically important markets. One of the most attractive aspects of SP Group’s current strategy is that management is not only investing to meet existing demand but also positioning the business for future growth in areas where customer demand is already visible. This is particularly evident within Healthcare, where the company is expanding production capacity in the United States and Poland to support medical device customers and already secured contracts. The expansion of the Atlanta facility is a very good example of why this is attractive. Production started in January 2025, and management has described this investment as being of high strategic importance. The factory is already fully operational and running production around the clock, with further investments expected in additional machinery as new customer tasks are secured. This is important because it brings SP Group closer to its US customers, shortens delivery times, and reduces exposure to trade barriers and supply chain disruptions. Management has specifically highlighted that customers increasingly want a more regionalized setup in order to reduce risks related to logistics, tariffs, and supply issues. This regional production model strengthens customer relationships and positions SP Group well for the ongoing nearshoring trend. Another important reason this is attractive is that the company is expanding capacity in areas where contracts are already secured. In Poland, SP Group is converting an existing 7.000 square meter factory and adding 1.700 square meters of new cleanroom facilities for medical device production. Management has explicitly stated that these facilities are tied to already secured customer contracts, which reduces execution risk and provides visibility into future utilization. The first stage is expected to become operational in the second quarter of 2026. This is particularly attractive because it means the capacity expansion is supported by real customer demand rather than purely speculative investment. Capacity expansion also supports margin development over time. Management has highlighted that margin improvement over the past decade has been driven in part by moving production to lower cost countries and increasing automation wherever possible. Expanding capacity in locations such as Poland and India can therefore improve competitiveness while maintaining high technical standards. At the same time, continued investments in automation, lean projects, and efficiency improvements across factories should help support profitability as volumes increase.

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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 22,13, which is from 2025. I have selected a projected future EPS growth rate of 12%. Finbox expects EPS to grow by 11,9% a year in the next five years. Additionally, I have selected a projected future P/E ratio of 24, which is twice the growth rate. This decision is based on SP Group'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 DKK 407,75. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy SP Group at a price of DKK 203,88 (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 393, and capital expenditures were 182. 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 127 in our calculations. The tax provision was 78. We have 11,8 outstanding shares. Hence, the calculation will be as follows: (393 – 127 + 78) / 11,8 x 10 = DKK 291,53 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 SP Group's Free Cash Flow Per Share at DKK 17,89 and a growth rate of 12%, if you want to recoup your investment in 8 years, the Payback Time price is DKK 246,45.

Conclusion

I believe that SP Group is an intriguing company with strong management. Its competitive moat is built on its technological breadth, deep customer integration, scale within specialized plastic manufacturing, and a decentralized structure that keeps the company close to its customers. ROIC has been stable around 10% in most years, and I expect it to remain in the 10% to 12% range moving forward, which may not sound high at first glance but is very attractive considering the industry in which SP Group operates. Free cash flow declined in 2025, mainly due to the large Idé Pro acquisition and higher inventory levels, yet it still reached its second highest level ever, and I expect it to increase over time as the acquisition is integrated and inventory normalizes. Macroeconomic factors is a risk for SP Group because customer demand is closely tied to industrial activity and investment decisions, meaning economic slowdowns, higher interest rates, or geopolitical uncertainty can lead to postponed projects and lower order volumes. In addition, rising oil, energy, and transportation costs can increase raw material expenses and pressure margins, while tariffs and supply chain disruptions can further affect both revenue growth and profitability. Competition is a risk for SP Group because it operates in a highly specialized and fragmented industry where niche competitors and larger industrial players can put pressure on pricing, margins, and customer relationships, especially within its sub supplier business, which accounts for most of revenue. In addition, competition for skilled engineers and technical specialists can make it harder for SP Group to maintain innovation, execute projects efficiently, and sustain its long term growth strategy. Customer concentration is a risk for SP Group because a relatively small number of large customers account for a significant share of revenue, meaning that reduced volumes, delayed projects, or the loss of a major customer could materially affect revenue, earnings, and factory utilization. This risk is amplified by customer specific production setups and the growing share of higher margin own products, where the postponement of just a few large projects can have a noticeable impact on profitability and quarterly results. The portfolio of own products and sub supplier work is a reason to invest in SP Group because it combines higher margin growth from its own niche products with the stability and recurring demand of long term customer relationships. This balanced mix supports margin expansion, reduces reliance on any single revenue stream, and gives the company both resilience and multiple avenues for long term value creation. Acquisitions is a reason to invest in SP Group because they have been a key driver of long term value creation, allowing the company to expand its technology platform, customer base, and geographic footprint faster than the underlying market. With a strong track record of more than 20 well integrated acquisitions and clear synergy potential from deals such as Idé Pro, management has shown an ability to create value through disciplined and strategically aligned acquisitions. Capacity expansion is a reason to invest in SP Group because it supports long term growth through investments that are closely tied to visible customer demand and already secured contracts, particularly within Healthcare. By expanding production in strategic markets such as the United States and Poland, SP Group strengthens customer relationships, benefits from the nearshoring trend, and improves competitiveness through greater scale, automation, and efficiency over time. I believe that SP Group is a great company, and buying shares at the Ten Cap price of DKK 291 could be a good long term investment.

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