A Quality Growing Swedish Microcap

Literally watching paint dry

Welcome to another edition of ROE The Boat.

For this issue I want to share with you my research on a Swedish microcap called I-Tech AB.

Please note: this article should act as an introduction the company and is not a complete deep dive. Make sure you do your own research before investing in any company mentioned in this newsletter.

Table of contents:

I-Tech AB - 

Company Overview
Business Model
Competition
Growth Opportunities
Financials
Management/Ownership
Key Risks
Valuation
Conclusion

I-Tech AB (ITECH) 🇸🇪

I-Tech AB is a microcap (1.42 billion SEK / 147 million USD) based in Mölndal, Sweden, and listed on the Stockholm Stock Exchange with the ticker symbol ITECH.

The company focuses on developing and commercialising antifouling agents for marine coatings. Their key product is Selektope, an antifouling agent which aims to prevent barnacle growth on ship hulls, thereby reducing fuel consumption and emissions.

The company was founded in the year 2000 when the first patent for Selektope was filed, and went public in 2018.

What problem does the company solve?

The company is dedicated to solving the costly problem of marine biofouling, particularly barnacle fouling, on ocean-going cargo ships, tankers, and ferries.

You have probably walked past a ship or boat before and seen barnacles sticking to the side of the boat. These barnacles cause an array of problems as they "super glue" themselves to surfaces, making them extremely difficult to remove without damaging the hull coating, which often necessitates costly repainting.

Barnacles also create significant drag and friction between a ship's hull and the water. This forces vessels to use more engine power, leading to increased fuel consumption and either speed loss or the need to burn more fuel to maintain speed. The increased fuel costs are a dominant expense for shipping companies.

Management at I-Tech estimates that between one-fifth and one-third of all fuel used by commercial vessels is wasted due to hull performance issues and biofouling.

Billions of blue blistering barnacles! - Captain Haddock

A further management study, made together with the Safinah Group, revealed that over a third of ships entering drydock had at least 10% of their underwater surface covered in barnacles, which could increase fuel consumption by 40% or more. On average, ships can lose 7% of their speed over a five-year period due to hull degradation caused by fouling.

Barnacles have traditionally been removed using the following methods:

Manual cleaning by divers or underwater robots: Ships need to be cleaned regularly. This method involves sending divers or deploying underwater robots to scrape the fouling from the hull.

Dry-docking for cleaning and repainting: When mechanical cleaning methods are insufficient or cause too much damage, ships have to be taken into dry dock for extensive cleaning and repainting. This was considered the most efficient strategy if barnacles had already settled and damaged the coating.

These traditional removal methods posed several problems:

Difficulty and damage: Barnacles are extremely difficult to remove without damaging the ship's hull coating. Such damage often necessitated costly repainting.

High costs: Each cleaning event can cost between USD 15,000 to USD 45,000, depending on the size of the ship. In addition to direct cleaning costs, there is also a loss of cargo revenue because the ship has to be stationary while being cleaned. Avoiding extra cleaning between dry-docking cycles (typically every three to five years) offers significant financial savings.

Local restrictions: There are often new or changing restrictions on where and how a hull can be cleaned.

Environmental damage: The use of traditional antifouling solutions can also lead to the release of chemical substances into the water.

The most effective strategy for addressing barnacle fouling is to prevent them from settling on the ship's hull in the first place. This is precisely the problem that I-Tech has solved.

I-Tech addresses these challenges with its core product, Selektope (generic name: medetomidine).

Selektope is an organic, metal-free biocide that operates with a unique, non-lethal mode of action: it makes barnacle larvae temporarily hyperactive, preventing them from settling on the ship's hull surface without killing or harming them.

This allows paint manufacturers to create high-performance antifouling coatings that have a lower environmental footprint and effectively protect against barnacles, even during static conditions when the boat is in dock.

Business Model

I-Tech sells Selektope as a dry powder to marine coatings manufacturers. These sales are conducted under supply and license agreements. The product is sold at a price per kilogram. Payment is received from customers upon delivery of the powder.

Selektope is used at an extremely low concentration (around 0.1% by weight) in antifouling paint formulations, where it can either boost or replace traditional copper-based biocides.

The company's target market is large commercial vessels (such as ocean-going cargo ships, tankers, and ferries), with plans to expand into leisure boats and other submerged structures.

Sales are heavily concentrated in Asia, which accounted for 98-99% of sales in Q1 2025, with China being a fast-growing market.

China is the dominant market for both new build ship construction and dry-docking maintenance, accounting for more than 60% of all new ships and service intervals globally.

Overall, Northeast Asia (including China, Korea, and Japan) completely dominates shipbuilding development, with close to all new construction projects occurring there.

Major paint-makers like Chugoku Marine Paints, Hempel, Jotun, and PPG Industries are among I-Tech's customers, incorporating Selektope into their coatings.

Here is the latest percentage breakdown of I-Tech's major customers:

Chugoku Marine Paints: In Q1 2025, CMP represented about 66% of I-Tech's net sales. This is a consistent share compared to the full year 2024, where CMP also accounted for 66% of sales. Historically, in 2023, CMP represented around 80% of total sales, indicating a trend towards diversification.

CMP was also the first global paint manufacturer to place a commercial order for Selektope in 2014 and launched the first commercial antifouling coating containing Selektope in 2015.

PPG Industries: In Q1 2025, PPG, along with other increasing customers, collectively represented 33% of net sales. Sales with PPG specifically grew by 300% over Q1 2024. PPG launched a new global product, PPG NEXEON 810, incorporating Selektope in 2024. This product is described as their "new flagship product" for both new build and dry docking segments.

Other customers: The trend since 2023 has been towards diversification of the customer base, with other customers significantly increasing their use of Selektope. While CMP's share has decreased from 80% in 2023 to 66% in 2024 and Q1 2025, it signifies that over a third of total sales now come from customers other than CMP.

Scalable asset-light business model

The company is asset-light as it holds the intellectual property (IP) and regulatory rights to Selektope but outsources all production to chemical manufacturers. This approach helps keep fixed costs low and allows for rapid scaling of volume as demand grows.

This model results in high gross margins (56% in Q1 2025) and high operating leverage, where incremental sales largely contribute to the bottom line (operating margins reached 31.5% in Q1 2025).

Manufacturing

As previously mentioned, I-Tech does not produce medetomidine in its own labs. Instead, they rely entirely on contract manufacturing. Its production partners are typically large API/CDMO firms with pharmaceutical experience.

After EU approval in 2015, I-Tech met the surge in demand through its agreement with life sciences giant Cambrex to produce Selektope on an industrial scale. In March 2018, I-Tech acquired Cambrex’s medetomidine process technology and IP. This gave I-Tech proprietary control over the key synthesis know-how.

Simultaneously, I-Tech announced plans to work with a large European API manufacturer to further increase capacity. By 2018 the company said it had already scaled from kilogram-level batches to a “robust manufacturing platform producing at multiple tons scale”. No specific facility names are made public beyond Cambrex; I-Tech simply notes that its chosen suppliers are the world’s largest pharmaceutical companies.

Competition

I-Tech AB operates in a market where competition comes from both established industry giants offering traditional solutions and emerging alternative technologies. While Selektope is a unique technology with specific advantages, it does face competition for adoption in the broad antifouling market.

Paint manufacturers

The antifouling coatings market is dominated by large multinational paint and chemical firms. Leading players include PPG Industries, Jotun, Hempel, Kansai Paint, AkzoNobel, and Sherwin-Williams/BASF.

In many cases, these same firms are also I-Tech's customers, as they incorporate Selektope into their antifouling products. These companies primarily sell traditional copper/zinc-based biocides and some also offer their own premium patented agents.

Alternative antifouling technologies

Beyond the traditional copper-based antifouling solutions there are other methods and products that compete with Selektope such as silicone or finsulate film coatings, both of which are non-toxic.

As well as other biocide additives which includes products like Econea or proprietary bio-mimetic compounds. I-Tech has collaborated with other biocide suppliers, such as LANXESS (SEA-NINE™), to explore combined solutions that offer broad protection against various types of fouling (e.g., soft fouling like slime and algae) and can reduce overall biocide content.

Market position of Selektope

Management states there is no direct competition that offers the same unique technology as Selektope.

Selektope itself is unique because of its bio-repellent mode of action that repels barnacle larvae without killing them, operating at extremely low concentrations. This distinguishes it from traditional biocides that aim to kill organisms.

I-Tech holds exclusive regulatory approvals for Selektope (medetomidine) in key markets (EU, US, Japan, Korea, China, Philippines), which creates high barriers to entry for direct competitors offering identical biocides.

Growth Opportunities

Revenue growth is primarily driven by selling more kilograms of Selektope into new and existing coating products.

Notably in the first quarter of 2025, I-Tech signed a new supply and license agreement with another major Asian-based paint company. It marks the addition of a seventh commercial customer to I-Tech's portfolio.

This means Selektope is now used by seven out of the nine largest marine paint manufacturers globally. These major paint companies are responsible for around 80% of the global market for antifouling paint for commercial and industrial shipping.

I-Tech AB currently focuses on large commercial vessels such as ocean-going cargo ships, tankers, and ferries. Management states that at present Selektope is used on a little more than 3,000 out of a global commercial fleet of 110,000 ships, representing approximately 3% market penetration within this sector.

Let’s not also forget there is a continuous flow of ocean-going cargo ships that are required to be re-coated every 3 to 5 years (25,000-30,000 vessels annually) and 1,000-1,500 new ships are built each year.

There’s also potential growth by targeting leisure boats and yachts, as well as other underwater structures that suffer from barnacle foulings.

One other area that has not been mentioned by the company is naval ships and submarines. With more spending happening around the world to bolster defence, I wonder if they have explored this area - a question for management.

The total antifouling coatings market is valued at approximately $3 billion USD annually. I-Tech's goal is for all antifouling coatings to contain Selektope, which would give them a total market potential of around $350-500 million USD.

Financials

The company’s revenue is growing at a fast pace, +45% in 2023 and +48% in 2024.

In Q1 2025, net sales were up nearly 50% year-over-year. The company noted this is due to significant growth from customers like PPG, whose volumes grew by 300% over Q1 2024.

The balance sheet looks solid with a cash balance of SEK 126 million, and just a short-term liability of 22,452 SEK. As mentioned earlier this is an asset light business that doesn’t need to take on any large debts, or issuance of new shares, to fund growth.

Management/Ownership

The management team is composed of experienced professionals with backgrounds in specialty chemicals, marine coatings, and corporate finance.

Markus Jönsson (CEO) (47) joined I-Tech in 2024. He is an experienced leader and business developer with decades of experience in specialty chemicals. His background includes senior roles at AkzoNobel, Novonesis, and Perstorp Group. He possesses broad technical and commercial expertise in Industrial Biotechnology and Specialty Chemicals. As of 2024, he holds 20,000 shares currently worth 2.44 million SEK ($254k USD). His salary in 2024 was 955k SEK ($99.7k USD).

Magnus Henell (CFO & Director Operations) joined I-Tech in 2017. He has extensive experience in finance and corporate management from various small and medium-sized enterprises (SMEs). Notably, he previously led the listing of PowerCell Sweden AB and held top mergers and acquisitions (M&A) roles at the Volvo Group. He holds 33,000 shares in I-Tech.

I-Tech has an active long-term incentive program for management and other personnel in the form of warrants. This could lead to share dilution over the long term.

Pomona-Gruppen is a significant shareholder in I-Tech AB, appearing as one of the largest institutional investors, owning just under 15% of the company. It is known to have participated early in I-Tech’s development.

Pomona-gruppen is a family-controlled investment company and its involvement signals a vote of confidence from a long-term industrial investor.

Key Risks

I-Tech AB faces several key risks to its business. The main ones that stand out to me are the following -

• Regulatory Risk

The sale of Selektope is dependent on biocide approvals. There is a continuous process of re-registration and renewal for existing approvals in various key markets (such as the EU, US, Japan, Korea, China, and the Philippines).

If authorities, particularly in the EU, reject re-registration or if regulations change and the company cannot fulfill new requirements, sales in those markets could cease, negatively impacting the product's brand and sales.

For example, Selektope is currently undergoing an evaluation for renewed approval in the EU, with a temporary extension expected as the process is often prolonged.

• Currency Risk

I-Tech's sales are primarily denominated in USD, while its financial reporting is in SEK. Fluctuations in the USD/SEK exchange rate can materially impact gross margins and overall profitability. A depreciating USD (against SEK) has been noted as an increasing headwind, potentially weighing on the company throughout the year.

• Customer Concentration

While I-Tech sells to seven out of the nine largest marine paint manufacturers, a significant portion of its revenue is driven by a few large contracts.

For instance, in Q1 2025, Chugoku Marine Paints and PPG Industries accounted for most of the volume growth. A slowdown or a change in strategy by a major partner could significantly impact revenue.

• Cyclical Risk

The business is subject to broader shipping industry trends. A downturn in global trade, a slowdown in ship coatings demand (e.g., if dry-docking cycles are postponed), or a lag in the adoption of Selektope-containing paints could impede growth.

Shipowners often try to postpone dry-docking during uncertain times to maximise revenue. Additionally, the emergence of alternative antifouling solutions (e.g., novel non-biocidal coatings or other biocide additives) could erode Selektope's competitive edge over time.

• Supplier Dependence

I-Tech's business model relies on outsourced production of Selektope by subcontractors. If these manufacturers are unwilling to continue cooperation or if terms become unfavorable, replacing them in a timely, qualitative, or economical manner could be challenging, potentially leading to negative effects on operations and financial position.

Valuation

At first sight the company shares seem expensive, trading on a current P/E of 25. However when taking into account the growth rate, the potential to gain market share, and opportunities to expand into adjacent markets I-Tech shares might still offer good value for a long term investor.

Below is a table compiled by the broker ABG Sundal Collier (research commissioned by I-Tech). The broker expects the strong sales to continue.

As per usual I will leave it to the readers to finish the last mile and conduct a deeper analysis of potential valuation.

A quick word on dividends. The dividend policy is to distribute 30-50% of the net profit to shareholders. While the current yield of 1.55% is low, if the business keeps growing this could eventually grow into a nice yield-on-cost to current shareholders.

Conclusion

While it doesn’t come without risks, I-Tech is a high quality scalable business with high operating margins and excellent returns on capital.

With only 3% market share there still seems plenty of runway for growth. As long as there is no significant downturn in the ship construction industry they should continue to prosper. A company to keep an eye on.

Thanks for reading.