It’s been a bumpy ride for the share of Swedish vehicle inspection operator Opus. In an interview with news agency Direkt, CEO Magnus Greko talks about several short-term factors and misunderstandings that have contributed to this.
“To be honest, we were probably a bit too optimistic ourselves. We signed several new contracts and underestimated the time it would take to get things in place. However, we are talking about minor time adjustments, not about any doubts about the profitability potential.”
One negative factor has been, somewhat ironically, the fact that the California business developed better than expected, according to CEO Greko. Opus managed to conquer more than 50% of the market for vehicle inspection equipment rental. “I think we’ll end up with around 4000- 5000 contracts (out of 8000 possible). We did not envisage such a success“. The downside with the rental business is that it has a high capital employment and high initial costs for provisions for the sales people, which can affect margins negatively in the short-term. The advantages are, however, tremendous says CEO Greko: “Profitability is good during the first 5 years, despite the fact that we are deprecating the equipment during that period, After that, profitability is very good. Cashflow-wise we have a payback period of 18 months.”
Other external factors that have been a disappointment for the market were the decision by British Columbia in Canada to discontinue its mandatory inspection program for cars and that Colorado extended the period up until an initial inspection is mandatory from 4 to seven years. Furthermore, there has been a restart of the tender process in Illinois, where Opus had already won the contract. Last but not least, concerns have been raised as to whether Opus will be able to renew its contract in Missouri.
Says CEO Greko: “We only go out with information that we deem to have an effect on the share price. But we will be more detailed when it comes to informing about developing going forward.” In Colorado, Opus is actively trying to compensate the reduced amount of inspections with higher effectiveness and CEO Greko says that Q1 numbers will show an initial indication as to how this has been successful.
The fact that Illinois is redoing its tender process should not be seen as criticism towards Opus, according to Greko. Applus, the previous owner of the contract, protested against Opus’s success and at the end they managed to convince the state to restart the process. Says Greko: “Applus is headquartered in Chicago and is probably well connected politically. Criticism has been primarily towards the environmental department.”
As Nordic Investor has mentioned several times before, a positive item for Opus is the higher USD/SEK exchange rate, something that CEO Greko says has not been noticed by the market sufficiently: “We have a large exposure towards the US dollar and we are not hedging our currency flows. There are some dollar-denominated loans, which get more expensive with a rising dollar, but overall we benefit from a weaker SEK.”
In terms of future expansion, CEO Greko sees no lack of interesting opportunities: “We have a large pipeline. The problem today is rather to choose the ones we want to reject.”
Besides its traditional vehicle inspection business, Opus has also entered the equipment rental business which could be expanded in the future, according to the company. Furthermore, Opus offers related services such as remote emission control . At the same time, the company is working on add-on services, such as payment services for registration fees. Says CEO Greko: “I believe that we could also offer other inspection services, e.g. control of imported vehicles. That is a market that is growing. We will also focus more on the driver, maybe assisting with driver’s licenses.”
In terms of geography, Opus has only recently entered Asia, by signing a 30-year contract for the inspection of commercial vehicles in Pakistan. The next step in the country is the introduction of mandatory inspection of personal vehicles, and the CEO hopes that Opus is in a good position, once that happens. He also wants to see the Pakistan contract as a door opener and is closely examining the markets in India and China.
Opus has also a list of projects in South America. As of today, the company is operational in Peru, Mexiko and Chile. “The ambition is to grow in these countries of course. We are also looking at Brazil and Argentina, but the challenges are big there.”
In an interesting twist at the end of the interview, CEO Greko mentions the company’s size as a problem when it comes to expanding the business. Several competitors are several times the size of Opus and have a different kind of financial muscles. Asked whether that makes Opus an attractive takeover target, CEO Greko says:” Opus is a publicly listed company in Sweden which has the future going for it. We like to challenge the big boys but if somebody wants to present a bid, it needs to be very attractive.”