Cedergrenska AB

A private equity playbook delivering public service

Today’s write-up covers a company with exceptional characteristics:

• Founder led education leader

• <5x forward P/E hidden by amortization charges

• 10% buyback completed, but not shown in Tikr/Factset/…

• 5 years of profitable growth

• 30% ROE target

The great performance of this business is hiding behind amortization of goodwill, and the great capital returns are hiding behind an out of date share count and market cap shown in commercial screeners/tools. Let’s study this one together.

Ticker: CEDER (Stockholm) Price: SEK 37.4
Shares Outstanding: 12.66m (No dilutive shares/options/warrants)
Market Cap: SEK 473m

Overview

Cedergrenska is a Swedish private school group, providing education across pre-schools (9%) elementary schools (29%), high schools (60%), and adult education classes (2%). The group is mostly active in the East of Sweden, and has ~9500 students, or 0.4% of the Swedish student population.

The company was founded by a stock market broker who dropped out of Wall Street in 2007 to become a history teacher, and a school quality auditor. Together, they built a teacher training program and improved the quality of their first school (Tibble Gymnasium).

They started acquiring schools, and enrolling them into their systems, compounding their investment, and their positive impact on Swedish education. It’s great to see these 2 combine their joint vocation for high quality education, with a private equity-style capital allocation.

The stock is highly attractive because:

• High Quality service and brand
  Cedergrenska’s schools have better reviews than other private or public schools, over 85% of teachers and students recommend them, and students are well prepared for university.

• Capital allocation

  Management is exceptional at capital allocation, balancing accretive acquisitions with opportunistic buybacks, while measuring all investments against a 30% ROE target.

• Operational excellence

  Newly acquired school groups are quickly optimized. The acquisition of the Aprendere Skolor school group acquired in Dec 2024, with trailing EBITDA of ~11 mSEK, will contribute at least 20 mSEK in 25-26 FY EBITDA.

  
  Cedergrenska optimizes schools with a focus on:

  • Margin expansion, through efficiency improvements in overhead, and corporate and facility support functions (IT, HR, payroll, cleaning, catering, … )

  • Quality improvement, through standardized training plans and digital infrastructure

• Undervaluation

  Cedergrenska’s trades at a 4-5x P/E calculated as
  (Net income – Interest income + Goodwill amortization) /
  ( Market cap – Unrestricted cash)

• Tailwinds for large private schools

  Both privatization and consolidation provide tailwinds for Cedergrenska:

  • Since allowing private (government-funded) schools in Sweden in 1993, their share has increased each year, to now ~22%. Private organizations often work better than government organizations, and schools are no exception.

  • Higher expectations on quality and digital infrastructure, from students, governments and teachers, benefit larger school groups coming with a strong offering, and drive consolidation of the highly fragmented school landscape.

History & founders

The company was founded by Håkan Söderström and Niklas Pålsson, who still have active leadership roles today.

Mr. Söderström has worked in the Swedish school system for all his career and took over a high school called “Tibble Gymnasium” in 2011. Stepping out of his role as school Quality auditor, he replaced the retiring school principal of the school.

Mr. Pålsson had left his 10-year career as a stock market broker in 2007 and joined the school as a history and economics teacher in 2010.

Together, the 2 aspired to create the best secondary school in northeast Stockholm. They set up a training program for new teachers, which drew interest from young graduating teachers, and led to a steep increase in both teachers and students wanting to join their school.

In 2018, Cedergrenska started its expansion, acquiring multiple schools or school groups per year, and providing them with Cedergrenska’s support functions and training, improving quality and profitability of the schools. Since 2018, Cedergrenska has added new schools every year.

In 2023, Cedergrenska acquired David Ebbesen AB, a food company which provides lunch to the students in the Group. The founders pride themselves on the increase in the % of students eating at the schools where David Ebbesen AB (now Cedergrenska Mat AB) provides food, saying it creates a better experience for the students, and a tighter school community.

High Quality service and brand

Before we consider investing in an education company, of course we must wonder if the education is any good? Is the company building a reputation and creating a positive impact on its communities, or is it cutting investments, delivering poor service, and exchanging its reputation for short-term profits?

Cedergrenska is an amazing education company, by several KPIs:

• Online reviews:

  Cedergrenska: Average score of 3.8/5

  Municipal schools: Average score of 3.6/5

  AcadeMedia: Average score of 3.3/5
  

• Stakeholder satisfaction:

  86% of parents recommends their pre-schools

  96% of high school students gain university entrance qualifications

  87% of teachers recommend their workplace

While each of these KPIs may be biased or influenced in their own way, the overview gives a picture of a high-performance education group, as one would expect from hearing an interview with one of its founders. Online reviews based on 10 schools per school group randomly picked, and using review on School Parrot.

Ownership & Capital allocation

Cedergrenska aims to grow 10-15% per year through a mix of organic and inorganic growth. We like 6 aspects of the company’s ownership structure and capital allocation:

1. Cedergrenska’s CEO (L. Smith) background as a Director at Morgan Stanley

2. Cedergrenska’s founders (both still active) own over 28% of the company

3. Cedergrenska has bought back ~10% of its shares at a P/E < 7x

4. New acquisitions or investments are measured against a target of 30% ROE

5. New acquisitions have mainly been debt funded, to optimize leverage

6. ~33% of (net income + amortization) is paid as a dividend

Operational Excellence

Cedergrenska’s management team is doing an excellent job operating existing and newly acquired schools. Their approach seems to rest on 4 main pillars:

1. Attract the best teachers (employer brand & training program)

2. Consolidate corporate functions (HR, IT, Finance, branding, real estate)

3. Consolidate and insource school support functions
   (maintenance, cleaning, kitchen)

4. Measure quality and cost-effectiveness, and run small scale improvement initiatives in pilot schools, which when successful are quickly ramped up
   (e.g. inhouse cleaning, kitchen, … )

The effect of these pillars though is quite spectacular. Since CEO Lotta Smith took her position in 2022, revenue has grown ~20% per year (organic & inorganic), and EBITDA margins have improved from 7% to 9%, while acquiring several schools at a lower EBITDA margin, in particular the large school group Aprendere Skolor, which was acquired in December 2024, having an EBITDA margin of only 3%, and contributing over 25% of the Groups revenue today.

The increase in margins, even while running large acquisitions, combined with the great capital allocation, creates the flywheel of value you want to see in a serial acquirer. Let’s dig deeper into the Aprendere Skolor acquisition:

Financials at time of acquisition:

• Revenue: 352 mSEK

• EBITDA: 10.8 mSEK (~3%)

• Acquisition price: 78.1 mSEK

• Multiple: ~7-8x EV/EBITDA

The rationale for the highly accretive acquisition is clearly articulated:

• Drive efficiency improvements and synergies worth ~9m SEK

• Implied EV/EBITDA upon successful execution: 78/(20) = ~4x

• Group EV/EBITDA at the time: 6x

Execution:

• “The integration of Aprendere Skolor AB is progressing and the EBITDA contribution from the acquisition is estimated to amount to at least SEK 20 million, starting in the 2025/26 academic year at the latest” (Q2 report)

• TTM EBITDA margin improved to 9% for Cedergrenska as a whole

Undervaluation

Cedergrenska has executed a synthetic buyback over the past 6 months, buying back 1.4m of the 14.06m outstanding shares, leaving 12.66 million currently outstanding. The company paid a total of ~50 mSEK and executed the buyback through a 3^rd party acting on their behalf.

After this buyback, the market cap is now 12.66 x 37.4 SEK = 473 mSEK, and the remaining cash position is 128 mSEK – 50 mSEK = 78 mSEK. The company has raised debt to fund this 10% buyback, although they could have also funded it from strong TTM cash flows, explaining the large cash position.

To come up with a good valuation, we take into account not only the shares repurchased, and the cash removed to do it, but also the interest rate on the debt taken on to initially obtain the cash. Cedergrenska recently took up 90 mSEK in debt using a revolving credit facility with Danske Bank, and will likely pay an annual interest of around 3.3% or 3mSEK, or ~2.5 mSEK after tax.

Cedergrenska trades at a TTM ex-cash P/E of below 6x:

• Market cap (473) – cash (78) = 395 mSEK cash-adjusted market cap

• Net income + amortization – interest adjustment = 71.5 -2.5 = 69 mSEK

• 395/69 = ~ 5.7x P/E

We consider Cedergrenska’s forward guidance of at least 67 mSEK net income + amortization, their past year performance, exceeding earlier minimum guidance by ~25%, and their current strong run rate of ~93mSEK based on the strong H2 of 2025. We estimate forward earnings + amortization to be around ~80 mSEK, resulting in a multiple of just under 5x P/E. (395/80)

Looking at the current cash availability, the share price, and the Net Debt/EBITDA target of 2x versus current net debt of ~0.2x EBITDA, it is likely that Cedergrenska will buy back additional shares in the coming years, while acquiring additional schools and paying a high single digit dividend.

We think Cedergrenska is attractive until a forward P/E multiple of ~12x to 15x, which implies a fair value per share of (12 to 15 … x80 + 78) /12.66 = 82 – 101 SEK per share, compared to the current share price of ~37.4 SEK.

Large cap competitor AcadeMedia trades at just over 13x P/E with high debt and lower ROE/ROIC measures (~10%) and looks slightly undervalued as well.

Tailwinds

We see 2 industry trends that act as long term tailwinds for large private school groups like Cedergrenska:

1. Increased privatization of schools

Over the past 32 years, schools in Sweden, have become increasingly privatized. Finding good management or continuation of management is often difficult for communes, which sometimes leads to considering privatization, when the school transfers to a new principal, which then also becomes the owner.

2. Increased consolidation of private schools

As the government, as well as teachers and parents, raise the bar on schools in terms of digital infrastructure, learning methods, and communication, larger schools have a growing operational advantage. This drives larger schools to attract better teachers, and more students, and drives the ongoing consolidation of private schools, with currently more than 80% of private schools still being independent single schools, rather than part of a group.

Risks

Investing is very risky. We think the key risks to consider before investing in Cedergrenska are:

• Grant risks. Cedergrenska is approximately free for students. The schools are paid a per student fee by the communes. The fee is calculated taking into account various factors that influence the needs of the student, while adjusting for inflation. Policy changes could change the fee and therefore impact on the profitability of Cedergrenska.

• Regulatory risk. Government’s expectations of private schools may change. Although this has so far mainly been a tailwind (driving consolidation), it could also be a headwind in the future. Recently, governments have suggested limiting capital returns of private schools, after some smaller school principals pulled out all resources from a couple of schools only for their own benefit. This barrier would be linked to the school’s quality results and would again likely be a benefit to Cedergrenska but should also be considered as a risk. We think this is a real risk, but one which the market may be overestimating.

• Inflation. When the cost-of-living increases, so does the cost of running a school, as well as many other government-related costs like health care etc. In that situation, the grants paid by the communes to private schools are adapted only slowly, creating a short or mid-term drag on profitability.

• Reputation risk. Single school events or mismanagement can lead to a loss of trust or reputation of all schools in the school group or company. A recent HBO documentary shows the scandal of children being photographed by a teacher in the English International Schools in Sweden. This is another (publicly listed) private company, which runs a school group where parents pay to get their kids educated in English. Not only the events, but also the reaction of the school and company leadership, will likely have a short to mid-term negative impact on the school’s reputation.

• Demographics. Birth rates in Sweden are declining, creating a demographic drag on Cedergrenska’s inflow of new students. This is offset by government per student budget increases, making the revenue organic growth of each school approximately ~1-2% per year, driven by 1-3% increase in fees per student, offset by 0-1% demographics and market share gains. Further declines in birth rate will likely be offset by further per student budget increases but could increase competition.

Summary

Cedergrenska is a well-led group of schools, with solid reviews, students and teachers’ well-being. The company is rapidly and consistently expanding through well-executed acquisitions, which are integrated well into the company, creating large integration synergies.

At a current market share of 0.4% of the school market in Sweden, Cedergrenska has a long growth runway ahead of it. We think shares currently priced at ~5x forward P/E or 37.4 SEK, are attractive until about 82-101 SEK per share, providing ample upside and margin of safety.

Disclosure - long