Plejd: The $AAPL of Electricians
Deep Dive by Eric Santa, a 2 Hour Deep Diver Alumni
This deep dive is written by , an alumni of my 2 Hour Deep Diver course.
Before reading Eric’s deep dive on Plejd, I knew nothing about the market for electrician tools. Reading this deep dive has been a great learning experience for me and I believe it will be for you too.
‘s last deep dive was on Zoom and he recently wrote a Q1 FY2025 update on his thesis too. Follow him on Substack to stay up to date with his work:Edited by Brian Birnbaum.
1.0 Introduction
Plejd develops and sells smart products and services for lighting control with a strong presence in the Nordic countries. These devices can be controlled via Plejd’s app, allowing users to customise and automate their lighting according to their preferences and schedules.
The Swedish company was founded in 2009 and came public in 2016. Between 2018 and 2022, the company’s sales grew 53% annually, exclusively from dimmers in the Swedish market.
Now, as a more mature company with a larger and expanding product offering, Plejd has expanded into other countries like Norway, where the growth trajectory is closely following the success seen in the Swedish market.
Trading at roughly 50% below all-time-highs, the stock presents an asymmetric opportunity.
I suspect part of this opportunity arises from a lack of analyst coverage, given that earnings calls are held in Swedish and the company only started reporting in English a few years ago.
Let’s delve into the details.
2.0 Plejd is Laser-Focused on the Electrician
Plejd is an excellent business that went from start-up to preferred supplier in just five years, achieving 41% organic sales CAGR between 2019-2023.
By offering a high-quality product with a simpler and quicker installation process, Plejd has won over the heart of the industry’s gatekeeper: the electrician. Such focus is likely what differentiates Plejd from its competitors.
Many electricians consider Plejd to be the Apple of their industry due to their products’ shared attributes: sleek design, high quality, excellent user experience, and attractive packaging.
Electricians show loyalty toward products they love. Plejd’s focus on the electrician has turned the company into a preferred supplier.
An example of electricians' loyalty towards some products can be seen in the pliers manufacturer Knipex. Although Knipex's products are not as complex as Plejd's, their stripping tools in particular are perceived by electricians as high-quality and deeply trusted. Some electricians claim they will never go back to other brands after trying them.
In the case of Plejd, however, this focus on both the electrician and end consumer has enabled the company to create a double moat.
Plejd’s hardware, configuration, and installation are targeted to electricians. On the other hand, the existence of an app to control the product is aimed at the end consumers.
Plejd’s focus on the electrician has been key to the growth of the company, as they’re the ultimate (professional) installers of its products. The process is thoroughly explained in the app, requiring no training or previous product knowledge (unlike some competitors in the smart segment like KNX and Dali). Its vertical integration enables Plejd to design, manufacture and develop every aspect of the hardware and software. Plejd competitors are typically traditional companies inexperienced in software development.
Another competitor worth mentioning, given how fast it is growing, is the Shelly Group. Shelly’s distribution, however, is direct-to-consumer, which means it doesn’t compete for shelf space in wholesalers and doesn’t target electricians either.
So if you just look at the years we've been operating here, no major competitor has so far at least come up with an offer that we think is on a par with ours. So it's not that easy technically. However, everyone can do it, because there is no major patent that protects us. What protects us in the long term is to continue to be at the forefront, continue to be innovative and continue to lead this development.
However, the market is so big. The entire lighting market must shift towards this. So there is room for many more than just us.
-Plejd CEO, Babak Esfahani during an interview with the Business World in 2021.
Apart from having first-mover advantage, thanks to vertical integration, developers can go straight to electrical engineers, who create circuit boards for the hardware. As a result, both software and hardware changes can be implemented quickly.
Electricians are faced with the need to manage everything from app control and scenes to voice control and integration into smart home systems. Traditionally, this involves a time-consuming process with requirements for special cabling, complex programming, and training. With Plejd, electricians can easily meet these demands through a single platform without the need for additional traning-
-Plejd FY2023 Annual Report.
As displayed below, Plejd’s DIM-01’s installation manual is only 2 pages:
This compares to other competitors, like Hager’s, whose manual appears to be significantly more complex.
Drinking from the fountain of Reddit’s wisdom, see what some Reddit users think of Plejd (or “Played” if you are interested in learning how to pronounce it):
Plejd’s products also provide greater flexibility regarding installations with wireless control, instead of drawing cables. Cabling often necessitates additional tradespeople, like painters, to hide new ducting. This can introduce uncertainty in both project planning and costs, potentially impacting the profitability of fixed-price projects and reducing the electrician’s margins.
Plejd’s technology enables electricians to establish ‘virtual’ cables within seconds, eliminating the issues associated with traditional cabling and offering the flexibility to position light switches and controls as desired.
Currently, most of the installations are renovations and take place in private homes, although management has stated its intentions to better address larger properties and is thus expected to obtain a larger proportion of commercial installations in the future.
In the coming years, the company will develop the system in order to better address even larger properties and is thus expected to obtain a larger proportion of commercial installations.
-FY2023 Annual Report.
The company will benefit from strong tailwinds such as the transition to connected electronics (aka the Internet of Things), and the sustainability trend, given the cost savings enabled by the ability to set up a schedule or by proximity sensors.
As stated earlier, Plejd owes its success in Sweden to just one product category called ‘pucks’–smart lighting control modules installed much in the same as traditional lighting control, usually behind the light switch. Their flagship product was the DIM-01, their first smart universal dimmer.
As depicted below, shortly after introducing its products in Norway, Plejd grew 531% year-over-year in the region. Such growth proved its ability to scale to other markets.
As the following picture shows, Norway’s contribution to total revenue has significantly increased from 2021 to 2023:
Revenue growth in Norway seems to be following the trajectory of the Swedish market:
Incidentally, the similar growth pattern is even more similar when sales in the Swedish market are delayed by 3 years:
Despite the slower growth in the Swedish market during 2023 (sales in Sweden grew 1% year-over-year), growth in the country is expected to continue, as the penetration of lighting control products in the country is still around 20-30%. We can attribute the slowdown to the Real Estate crisis that the country is currently going through, as most of the installations are performed on house renovations, which has been affected by lower house prices.
If anything, the fact that Plejd was able to grow sales during such a period of macroeconomic headwinds is evidence of the quality of the products and strong underlying demand.
Nobia AB, a manufacturer of kitchen interiors, has similar exposure to the real estate sector. Its products go hand in hand with home renovations. Revenue generated from the nordics grew for eight consecutive years until dropping 15% from 2022 to 2023.
As Norway’s population (5.5 million as of 2022) is roughly half of Sweden’s (10.5 million as of 2022) one could easily underestimate the potential of the Norwegian market. However, Norway is significantly richer than Sweden ($105.8k vs $56k GDP per capita, 2022, as per Statista) and it is common for Norwegians to own second houses in the country, often referred to as ‘hytter’, popular for weekend getaways and vacations. As a result, Norway’s TAM (Total addressable market) is similar to that of Sweden’s.
3.0 Distribution
Plejd is a B2B (Business-to-business) supplier. It has direct customer relationships with electrical wholesalers in each of their active markets.
Plejd’s focus on the electrician drives their demand from wholesalers. The electrician then installs them mostly at private homes. The end consumer often does not have a product preference, which results in the electrician usually choosing Plejd.
Electrical wholesalers buy products in bulk from producers, which allows the former to negotiate lower prices per unit. This can squeeze producer’s margins, especially if there are only a few major suppliers–as is the case in Sweden. Barriers to entry in the industry include strong brand recognition backed by a history of producing high-quality products, and relationships with wholesalers.
Despite massive growth, Plejd has maintained the quality of its products, partly achieved by full vertical integration of its operations. This allows for careful quality control at all stages of the manufacturing process and enables a swift introduction of product changes and innovations.
Vertical integration maximises Plejd’s profitability. Evidence can be found in gross margins exceeding 50% since 2020, pointing to significant competitive advantages. As a comparison, Apple’s gross margins were 42.27% as of Q2 24.
Other companies, like Ikea and Phillips, operate B2C (Business-to-consumer). Installations are usually performed by the consumer. Plejd’s focus on professional installation and product quality warrant higher standards that retain customers reliant on their products to nurture their business.
4.0 More markets, more products, more Plejd
Plejd’s growth is set to reaccelerate in the coming years through a combination of entering new markets and launching new products.
The company has hit an inflection point in its operating leverage, increasing free cash flow per share.
From Q1 23 to Q1 24, revenue increased 31%, while operating profit increased 83%. For each SEK1 in revenue, operating profit increased by SEK2.68.
Incidentally, it seems like Plejd might have reached an inflection point as it returned to positive free cash flow during Q1 24:
It is likely that Plejd will achieve growth in other countries considering that its current product range (more on this below) is now significantly wider than since expanding to Norway.
According to CEO Babak Esfahani, Holland offers the greatest potential for high growth in the near term. The Dutch market is 2x or 3x larger than Sweden’s. Holland has the potential to replace Finland as Plejd’s third largest market.
During Q1 24, the Dutch market seemed to have reached an inflection point, with growth significantly accelerating QoQ to 91%.
As depicted below, The Netherlands made up 2% of Plejd’s net sales for FY 2023:
Successful penetration into new markets requires that Plejd meet two preconditions. First, it must prepare a complete product range–meaning products need to be adapted to each market so that the electrician’s installation process is as smooth as possible. With the launch of the shutter controller and the multi-dimmers, the product range in Holland is close to complete.
Secondly, Plejd must maintain and expand relationships with wholesalers. According to Esfahani, as of Q1 2024 Plejd has around 30%-40% wholesale coverage of the Dutch market.
Plejd has also increased its presence in Germany, Spain, and Switzerland by building up a sales team ahead of the launch of a new product, the JAL-01, launched during Q2 2024. This product, also known as the shutter controller, gives direct feedback of the window covering’s position and tilt angle through the app, enabling the automation and other smart functions of window coverings. Given the longer hours of sunlight per day, shutter controller is key to European expansion.
In February 2024, Plejd announced the integration with Amazon Alexa. Since Alexa is more widely used in Europe than in the Nordic countries, integration will support Plejd’s European expansion. Plejd also integrates with Apple HomeKit, Homey, and Google Home.
During August 2023, the EU banned placing new fluorescent tubes and bulbs into the market. The prohibition also took force in the UK in February 2024. As old fluorescent lights are replaced, Plejd can capitalise, as LEDs are generally superior in terms of energy efficiency, lifespan and environmental impact.
Plejd’s product range increased in 2023 with the introduction of smart luminaires, its first new product category since pucks were launched in 2016.
Smart luminaires make adjustable colour temperature products available, enabling a lighting fixture to change the hue and warmth of the light it emits. The first product in the smart luminaires category was the downlight, which received strong demand with over 150,000 units delivered during H2 2023.
Management shared their intentions to launch more products within this category during 2024, and two new categories during 2024/25, which will broaden the customer base in each market. Plejd has also shared intentions to enter the smart heating control market in 2024/2025, with the launch of a smart thermostat. According to Esfahani, this product has a lot of potential in Norway, with a TAM as big as that of dimmers. It is common for Norwegians to have a thermostat in every room in the house.
Thanks to Plejd’s design, adding more products to an existing installation is a simple process that will allow Plejd to capitalise on prior installations as its product portfolio grows. Customers happy with the products’ smart functions usually turn to the electrician to expand the system, creating additional sales for the electrician–otherwise known as a flywheel effect.
5.0 Strong Alignment of Interests
As of FY 23, the company has four parties that together own 39.6% of the shares: Christian von Koenigsegg privately and through companies (12.49%), Avanza Bank (10.94%), Nordnet Pensionsförsäkring (8.90%) and Pluspole Group (7.28%).
Insiders own 29% of the company, establishing a strong alignment of interests with shareholders:
Plejd Founders is a common ownership group created by Erik Calissendorff (co-founder) and Pär Källeskog (former chairman of the board).
Babak Esfahani, CEO of Plejd, recently sold 6,000 shares. However, this was due to personal reasons, and it is the first sale since 2018. He still maintains a holding of 394,000 shares, or 3.5% of the shares.
5.1 No Legacy Products
Plejd benefits from first-mover advantage. Unlike traditional lighting producers, they have no legacy products, which can often hinder technological progress.
The absence of legacy systems reminds me of Tesla and the electric vehicle industry. It is not enough to replace a combustion engine with an electric one. You must start with a blank slate and design each part of the vehicle so that they work together as an integrated and efficient whole.
Plejd produces what’s needed today, unrestrained by old systems or products.
6.0 Financials
Gross margins consistently above 50% denote the existence of a competitive advantage.
For a company that is still in the early stages of its growth phase, Plejd’s balance sheet looks rather strong. Cash (SEK20 million) constitutes approximately 72% of its long-term liabilities, and its current ratio is above 2x.
The recent dip in gross margins can be attributed to the introduction of the luminaires series during 2023. The dip is expected to persist during 2024 as the company ramps up production of other new products, although management doesn’t expect a drop below 50%.
It is no easy task to find close competitors whose financials are available to the public, but I managed to find three. Signify NV, a manufacturer of lamps, luminaires, and lighting electronics, features gross margins 10% narrower than Plejd’s. Another example is Fagehult Group AB, a developer and manufacturer of lights and lighting systems, whose gross margins sit below 40%.
Lastly, Zumtobel Group AG, another producer of light fixtures and light management devices, features gross margins around 35%.
Longer-term, luminaires gross margins are expected to widen as manufacturing efficiency improves and hardware updates are made. Plejd already demonstrated their ability to improve production efficiency in their first product category, the puck series, reflected in gross margin improvement. Pucks are a compact smart device used to control and automate lighting functions within a smart home system.
Additionally, more products will be developed under the luminaires category with higher margins than the downlight (first product in the luminaires category).
As mentioned, Plejd managed positive free cash flow per share during Q1 2, a milestone achieved partly due to positive WC (working capital) movements despite inventories growing slightly from Q4 23 (SEK159,106k) to Q1 24 (SEK160,104k).
During Q3 23, WC swings took operating cash flow into deep negative territory, leading to a reduced cash position (more on this below). The market penalised Plejd accordingly, sending the stock to levels not seen since 2020.
IFRS (International Financial Reporting Standards) allows Plejd to capitalise certain R&D (Research and Development) costs aimed at expanding the product portfolio. This translates into a less penalised P&L (Profit and Loss account), lifting operating profit up. These expenses are recognised from the time that the asset is ready to be used.
As illustrated in the graph below, Plejd’s R&D capitalizations have surged in Q4 23 and Q1 24, as the company allocates more resources to expand its product portfolio. Notably, unlike the first three quarters of 2023, the adjusted operating profit has been positive during this period. It is crucial that Plejd continues to increase its adjusted operating profit while investing in R&D.
During 2022, as a result of the pandemic, the global electronic component supply chain was in a precarious position, leading Plejd to stockpile inventory as it tried to secure delivery capacity. As a secondary effect, Plejd’s liquidity dried up towards the end of 2022 and was temporarily secured with an overdraft facility. Although there was a real risk of a potential capital raise, Plejd did not have to resort to it.
Inventory levels have been coming back to normal since Q2 23 (more on this below) and CEO Esfahani expects that inventory will decrease further during 2024, freeing capital up and reducing liquidity risk going forward.
Management considers inventory worth 20% rolling 12 months revenue to be reasonable going forward.
7.0 Valuation
Plejd’s market capitalisation amounts to SEK2.8 billion, roughly 50% down from the all-time high of SEK493 per share achieved during 2021. Currently, shares are priced at SEK255.
With so much potential growth ahead, it seems like a waste of time to build a DCF, given the futility of predicting far into the future. Instead, I will conservatively forecast Pledj’s 2025 EBIT and apply a 20x multiple to that number (competitor Shelly Group trades at 31x EBIT). Such multiple seems justifiable given the potential growth left ahead and the company’s wide gross margins.
As the company continues their international and product expansion, >30% YoY revenue growth seems likely for the next few years. Despite the recent dip in EBIT margins due to the launch of the luminaires series in 2023, Plejd should be able to achieve EBIT margins of around 22% in 2025, which would take 2025 EBIT to around SEK190 million.
This would mean a total valuation of SEK3.8bn or SEK340 per share for 2025 when applying a 20 times EBIT multiple.
8.0 Final Thoughts
Plejd’s laser-focus on the electrician has taken the company from start-up to preferred supplier in just 5 years.
The undergoing international expansion with a growing portfolio will be a challenge for a small company like Plejd. There are certain risks that need to be acknowledged such as whether new product categories will be as successful as the first one, or whether Plejd will be able to penetrate other markets where wholesalers are more fragmented.
However, Plejd’s management has shown brilliant execution and has proven its ability to scale to other markets, creating a potentially bright path ahead.
A worsening of the macroeconomic conditions in Europe could also potentially slow Plejd’s growth, although I believe over the long term, the company’s growth is backed by strong tailwinds such as the transition to connected electronics and sustainability.
Note: Plejd is currently listed in the Swedish Spotlight Stock Market, which means it might be difficult to find the stock available in some brokers outside of Sweden. I am not aware of any existing plans on listing anywhere else.
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Disclosure
These are opinions only of the individual author. The contents of this piece do not contain investment advice and the information provided is for educational purposes only and no discussions constitute an offer to sell or the solicitation of an offer to buy any securities of any company. All content is purely subjective and you should do your own due diligence.
Antonio Linares makes no representation, warranty or undertaking, express or implied, as to the accuracy, reliability, completeness or reasonableness of the information contained in the piece. Any assumptions, opinions and estimates expressed in the piece constitute judgments of the author as of the date thereof and are subject to change without notice. Any projections contained in the Information are based on a number of assumptions as to market conditions and there can be no guarantee that any projected outcomes will be achieved. Antonio Linares does not accept any liability for any direct, consequential or other loss arising from reliance on the contents of this presentation. Antonio Linares is not acting as your financial, legal, accounting, tax or other adviser or in any fiduciary capacity.
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Me ha gustado mucho sinceramente y viendo donde cotiza tiene mucho potencial si lograncrecer en Holanda y mantener unos inventarios aceptables que no impacten mucho en si WC.
Mis felicitaciones por el trabajo.