EdiliziAcrobatica: Italy’s money-printing rope acrobats

Buckle up for one of the most unusual equity stories you will have heard about in a while.

It involves a little-known stock that has recently been on the move and which probably has a lot further to run during the years to come.

Enter EdiliziAcrobatica, the world's only publicly listed specialist for rope-based building services.

EdiliziAcrobatica.

From boat skipping to building maintenance

Italy is not exactly renowned for amazing growth companies in innovative sectors.

Usually, investing in Italian stocks involves heritage brands, tourism, or some kind of distressed asset. Italy's near-zero growth in GDP per head since 2000 is the worst in the OECD club of rich countries. Given the country's long-standing structural issues and its small, underperforming stock market, why even consider investing in Italy at all?

It's because of outliers like Riccardo Iovino, a skipper from Genoa who turned his passion for the sea into an outstanding publicly listed company. His firm has the potential to become a household name – not just in Italy, but across Europe or even globally.

EdiliziAcrobatica's 54-year-old founder, CEO and major shareholder.

When working on sailboats, Iovino learned how to safely and quickly climb masts using the so-called double safety rope system. When a friend back on land told him of his difficulties in replacing the gutter in an inaccessible place of his building, Iovino decided to step in. He helped his friend by abseiling from the top of his house using the same rope techniques that he had practiced on sailboats. Not only did this get the job done, but it also saved his friend the money that would otherwise have gone to hiring scaffolders.

Scaffolding as it's commonly used for work on tall buildings comes with many disadvantages. It's expensive, enables burglaries, blights the façade while it's up, doesn't always help with getting to inaccessible areas, and (somewhat surprisingly) it's not even the safest method.

After earning a bottle of wine for helping out his friend, Iovino realised that rope techniques used on boats can also be used to get all manners of building work done effectively:

• Renovating, maintaining and cleaning façades.
• Installing equipment in high places.
• Restoring monuments.
• Carrying out specialist jobs, such as anti-seismic interventions.

Iovino's idea was to use ropes and other equipment to get all of these jobs done quicker, cheaper, and even more safely, without having to put scaffolding in place. During the ensuing years, his company's near-perfect safety record has proven that the double safety rope system is actually safer than scaffolding – who knew?

Source: Twitter account of Angela Sarli.

In 1994, operating from the proverbial garage that start-ups are known for, Iovino set out to build what is now Europe's (if not the world's) leading specialist for rope-based building services. It's taken him nearly a decade to move EdiliziAcrobatica from concept phase to operation, but the company's subsequent growth was all the faster.

EdiliziAcrobatica – literally "Acrobatic Construction" – started to operate in earnest in 2004 with a single office in Genoa. It has since grown to operate in 120 locations, most of which are in Italy with the remainder spread between France and Monaco (8), Spain (2), and the Middle East (1).

In November 2018, Iovino took the company public. After building a replicable, scalable business, what he needed was money to fund further growth as well as the increased credibility and visibility that only a stock market listing would bring.

Shares were placed at EUR 3.33 each and have since risen to EUR 18, vastly outperforming just about every relevant benchmark index. During the last weeks, the stock has climbed quickly and currently seems on the path to breaking its former record high of EUR 20.50.

What's been fuelling this interest, and is there more to come?

From Italian SME to global enterprise

In early March 2023, EdiliziAcrobatica announced an acquisition that truly launched the company on the world stage.

The Italian firm bought control of Enigma Capital Investments, a Dubai-based firm for building maintenance and construction services in the Middle East. Among others, Enigma is responsible for cleaning the Burj Khalifa, Dubai's most iconic skyscraper and the highest skyscraper in the world.

This transaction made clear that EdiliziAcrobatica has the ambition to grow its model not just domestically or within Europe, but globally.

Amazingly, there is no other operator in this industry that offers this type of service as a standardised, industrial service and with the possibility of purchasing a local franchise. In fact, there are barely any other competitors worth mentioning.

Offering rope-based building services is mostly the domain of freelancers and small, artisanal firms. Even in Italy, where this model has now received a lot of media attention, the second largest operator of such services is just one tenth (!) the size of EdiliziAcrobatica.

Iovino had realised early on that he needed to build not just a replicable, scalable service model, but also brand awareness and a marketing platform to reach customers. EdiliziAcrobatica's sales offices in Italy are bright, modern and accessible. The company also offers its services through an app, which helps managers of condominium buildings to source and manage all types of maintenance work.

Sales offices of EdiliziAcrobatica (source: Investor Presentation HY 2022).

EdiliziAcrobatica has also become a master at producing media content that presents its business in a playful, exciting way. Its Facebook page has 206,000 followers. Wait for videos from Dubai and what that can do to the company's following!

Who knew that cleaning gutters could ever be something that captures consumers' fascination? See for yourself by watching this one-minute company video.

Source: EdiliziAcrobatica YouTube channel.

EdiliziAcrobatica's ethos and its strong focus on its employees has helped it grow at an astonishing pace: in 2022, revenue went up by 51%, from EUR 98.1m to EUR 148.1m. The company's average order size was EUR 6,100, which indicates how much more affordable than scaffolding this service is. To handle its growth, EdiliziAcrobatica increased its headcount by 23% to 1,709 employees.

The company has created what is now a highly profitable niche. Detailed figures for the year 2022 are due to be published in late April 2023, but the first half of 2022 already demonstrated just how lucrative this niche is. On the back of generating revenue of EUR 68.9m during the first six months of 2022, EdiliziAcrobatica earned EBITDA of EUR 21.8m and a net profit of EUR 10.6m. The firm operates with an EBITDA margin of 32% and a net profit margin of 15.7%. These are stunning figures, which allowed the company to increase its dividend to EUR 0.80 per share, compared to EUR 0.30 for 2021 and EUR 0.057 for 2021.

The market has been caught by surprise. While in October 2022, analysts at Intesa Sanpaolo had estimated revenues of EUR 127.8 for 2022, EdiliziAcrobatica that year already surpassed the revenue goal that Intesa Sanpaolo had set for 2023 (EUR 140m).

Watching acrobats perform their work high up in the air can be breathtaking – but so is EdiliziAcrobatica's growth potential, which is only now becoming more widely known.

Massive consolidation opportunity

In Italy, just one other company in the sector generates revenue of EUR 15m. There are a further 19 companies that offer rope-based building services and are worth mentioning for being more than a freelancer outfit or small family firm, but none of them reaches revenue of even EUR 5m.

The market is highly fragmented, and waiting for someone to consolidate.

In Italy alone, there are 4.2m buildings with more than three floors. The country's annual spending on building renovation is well in excess of EUR 50bn. Given its proven advantages in terms of cost, EdiliziAcrobatica can tap into a huge growth market.

With subsidiaries in France, Monaco, Spain, and the Middle East, it's safe to assume that Iovino has set his sights on building a global firm that is based around a franchise model. When EdiliziAcrobatica launched the franchise model in 2012, it was the first building services company in the world to do so. New franchisees can buy into an existing platform and benefit from the firm's expertise, technology platform and brand; reportedly, they reach the group's usual level of profitability within less than 12 months. About one in four of EdiliziAcrobatica's Italian offices are operated by franchisees. Given these metrics, one has to ask if EdiliziAcrobatica could become the McDonald's of the rope-based building services sector.

The company has a huge addressable market to conquer, and it has already proven that it has worked out the right formula to do so. It's surprising that despite this success, EdiliziAcrobatica currently has a market cap of just EUR 150m. Parts of this can be explained by the fact that the stock is thinly traded, not the least because Iovino and his business partner own 74% of the company. Experience shows that even most small-cap fund managers wouldn't touch a stock if the company doesn't have a market cap of at least EUR 250m.

However, it's now probably just a matter of time before the market cap reaches the next level and the stock starts to appear on the radar of investors not just in Italy but elsewhere.

A cheap compounder for the 2020s

EdiliziAcrobatica is currently valued at just one time revenue.

The stock is trading at a single-digit price/earnings ratio.

It even offers a 4.4% dividend yield, which is equally unusual for a growth stock.

The opportunity to grow market share through both organic growth and acquisitions is huge. In fact, in my years of looking at consolidators, I cannot remember coming across another industry with such a number of potential acquisition targets and a leading operator that towers as far above the rest of the competition than EdiliziAcrobatica. Being ten times bigger than its biggest domestic competitors and >30 times bigger than the following 19 operators is a market fragmentation on a different level.

Right now, the lack of research about the company and its limited visibility outside of Italy are the main problem for the stock to trade higher. However, this has started to change.

EdiliziAcrobatica was featured at the Value Spain Conference on 23 March 2023, one of the highest-quality conferences for value investors in Europe. Massimo Fuggetta, Chief Investment Officer at Bayes Investments, presented his analysis of the case. It was the closing presentation of the day and kept the eyes of those who had stayed till the end glued to the final presentation.

A few weeks prior, a private investor with just one (!) follower had posted an informative thread about EdiliziAcrobatica on Twitter. As he mentioned there, he had also published the story on a few other niche websites.

Word is likely to spread further, and it'll shine a light on the company's attractive metrics.

When Intesa Sanpaolo published its estimates in October 2022, the analysts projected 2022 EBITDA of EUR 39.6m and earnings per share of EUR 2.45. When EdiliziAcrobatica released its top-line figures for 2022 in February 2023, Intesa Sanpaolo published a brief update that projects 2023 EBITDA to come out at EUR 32.6m and earnings per share of EUR 2.05. Why the decrease? Italy had long subsidised the renovation of building façades ("Bonus Facciate"), but is now cutting back on these subsidies.

Source: Intesa Sanpaolo, 16 February 2023.

2023 might see a slowdown in the Italian market, but EdiliziAcrobatica's international expansion and acquisition of smaller competitors are likely to speed up. It's probably for that reason that the stock kept climbing recently, despite the possibility of a temporary slowdown of the domestic market.

Even based on the lower estimates for 2023, the company is currently trading at an EV/EBITDA ratio of 4 and a price/earnings ratio of less than 10. For a market leader with such growth potential, this is too low a valuation by anyone's standard. This is an asset-light, highly profitable company which, if sold in an M&A transaction, would probably achieve a price two or three times higher.

As with any entrepreneurial venture that tries to disrupt an industry, EdiliziAcrobatica is not without risks:

• The firm is exposed to staff shortages and rising salaries driven by inflationary pressures, national governments can temporarily distort demand by increasing or cutting subsidies for building maintenance or maintaining historical properties, and the company can face ordinary macroeconomic headwind such as difficulties in collecting payments from customers.
• Just to what degree this market has low or high barriers to entry can be subject to controversial debate.
• There are also no directly comparable peers listed on the stock market, and a listing in Italy and on Euronext Paris is not ideal for getting the attention of investors.

Overall, though, EdiliziAcrobatica seems well positioned to capture the opportunity presented by this innovative commercial value proposition. The commercial penetration of rope-based building services relative to the use of scaffolding probably only has one way to grow, and EdiliziAcrobatica could even benefit from leaner times due to its more cost-efficient service. It's also quite simply a great story, which both the mainstream and investment media are likely to pay more notice of going forward. In Italy, the company has already been the subject of HUNDREDS of articles.

If I was to make a bet, I'd say EdiliziAcrobatica (and its stock) is going to scale to new heights over the coming years – pun intended.

Those who want to dig deeper should read the April 2021 research primer published by Intesa Sanpaolo in April 2021. It's now slightly out of date, but still offers the best summary of the industry's background. Besides, watch out for the release of EdiliziAcrobatica's final 2022 figures and 2023 outlook in late April 2023.

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