Solteq |

Nordic IT service provider and software house

| Finland

Financial overview

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Solteq - Leaving behind a year to forget

16.02.2024 | Company update

Solteq’s Q4 was as expected weak, earnings improvement in Utilities a positive. We expect improvement across the board in 2024 driven by cost savings measures taken in Utilities.

A quarter of cleaning up in-house figures
Solteq reported slightly weaker than expected Q4 figures. Net sales amounted to EUR 14.2m (Evli EUR 14.6m), in comparable terms at previous year levels. Net sales in Retail & Commerce were a slight disappointment, showing a minor y/y decline, while Utilities showed slight growth. The operating profit and adj. operating profit amounted to EUR -9.1m/-1.0m respectively (Evli EUR -7.1m/-0.8m), with the difference in the former mostly due to additional write-offs along with those previously communicated. Solteq expects the comparable revenue to grow in 2024 and the operating result to be positive. Solteq’s BoD proposes that no dividend be paid for FY2023 (Evli EUR 0.00).

Expecting improvements across the board
With the cost savings measures implemented in Utilities, the impact of which was partly visible already in Q4 (comparable EBIT + ~EUR 0.6m y/y), Solteq’s profitability is set to improve significantly in 2024, with our EBIT estimate at EUR 2.1m. A key factor for 2024 and Solteq’s investment case lies in Utilies’ ability to capitalize on the favourable market conditions. With the product-related challenges tackled and a key customer delivery nearing completion, we expect new sales to start to pick up during H1 and growth to accelerate during H2. Near-term growth is supported by potential in Finland while longer-term growth needs to be sought abroad. The market conditions remain shaky for Retail & Commerce but we remain optimistic about growth in 2024 given the assumed easing of macroeconomic uncertainties. 

HOLD with a target price of EUR 0.85
Despite expected clear EBIT improvements, earnings should remain weak due to financial expenses. The 2024e P/E as such remains unappealing, but much less so on 2025e should the company get closer to its financial targets. With the turnaround uncertainty we retain our TP of EUR 0.85 and HOLD rating.

Solteq - Slight comparable EBIT improvement

15.02.2024 | Earnings Flash

Solteq’s Q4 results were as expected weak and slightly below our estimates. Revenue was at EUR 14.2m (Evli EUR 14.6m) and adj. EBIT at EUR -1.0m (Evli EUR -0.8m). Solteq expects the comparable revenue in 2024 to grow compared with 2023 and the operating profit to be positive.

  • Net sales in Q4 were EUR 14.2m (EUR 16.9m in Q4/22), slightly below our estimates (Evli EUR 14.6m). Revenue declined 15.6% y/y in Q4. In comparable terms revenue was at previous year levels.
  • The operating profit and adj. operating profit in Q4 amounted to EUR -1.0m/-9.1m respectively (EUR –1.2m/-1.0m in Q4/22), below our estimates (Evli EUR -7.1m/-0.8m). 
  • Solteq’s Q4 was impacted by write-offs of activated product development costs amounting to EUR 7.5m and other charges relating to the change negotiations. The comparable operating result was EUR 0.4m better than the comparison period. 
  • Retail and commerce: revenue in Q4 amounted to EUR 10.5m (Q4/22: EUR 13.3m) vs. Evli EUR 11.0m. Revenue declined by 21.1% driven by divestments but also minor comparable revenue decline. The adj. EBIT was EUR -0.2m (Q4/22: EUR 0.1m) vs. Evli EUR 0.7m. 
  • Utilities: Revenue in Q4 amounted to EUR 3.8m (Q4/22: EUR 3.6m) vs. Evli EUR 3.6m. The adj. EBIT was EUR -0.8m (Q4/22: EUR -1.0m) vs. Evli EUR -1.5m. 
  • Guidance for 2024: Solteq expects the comparable revenue to grow and the operating result to be positive. The comparable revenue was EUR 54.2m in 2023.
  • Dividend proposal: Solteq’s BoD proposes that no dividend be paid for FY 2023 (Evli EUR 0.00).

Solteq - Cautious optimism amid uncertainty

13.02.2024 | Preview

Solteq reports Q4 on February 15th. Our key points of interest relate to the market and growth outlook, while Q4 bottom-line are of lesser interest due to the impact of cost savings and write-offs.

Q4 of lesser interest, focus on near-term outlook
Solteq reports its Q4 results on February 15th. Bottom-line figures are expected to be clearly negative due to write-offs made to product development investments after a change in practice in activating costs. We expect the adj. EBIT to be negative, at EUR -0.8m, as the cost savings from previously taken measures will not yet be clearly visible, along with some operative softness. We expect a net sales decline of -13.6% to EUR 14.6m due to the divestment in 2023, which on our estimates should translate into lower single-digit organic growth. With the weaker financial performance and the company’s outstanding bond (nominal value EUR 23m) maturing in October, we expect no dividends to be paid. On our estimates, we expect the guidance for 2024 to reflect a decline in net sales (organic growth) and positive EBIT. Our operative estimates remain intact ahead of Q4.

Expecting profitability turnaround in 2024
2024 is expected to be a turnaround year for Solteq especially in terms of profitability. With the cost savings measures taken in 2023, the company expects annual savings of EUR 3.8m, the majority of which should show in 2024. The growth outlook is still somewhat shaky, but we remain carefully optimistic for both segments. Growth in Retail & Commerce has been affected by the market weakness and we expect this to continue but ease going into 2024. The outlook for Utilities based on market conditions remains favourable, but with the product-related challenges faced in 2023 and cost savings measures taken, we anticipate a slower start to 2024. 

HOLD with a target price of EUR 0.85
With our coming year estimates intact, we retain our target price of EUR 0.85 and HOLD-rating. Valuation is on the higher side on our 2024e estimates and near-term uncertainty elevated, while the long-term outlook remains favourable. 

Solteq - Shifting course slowly but steadily

27.10.2023 | Company update

Solteq’s Q3 was slightly upbeat despite the weak figures and the company remains on track on its turnaround trip. We have slightly softened our growth expectations for 2024 and adjust our TP to EUR 0.85 (0.90).

Some more positive signs in Q3
Solteq reported slightly upbeat Q3 results. Revenue grew 1.9% in comparable terms to EUR 12.2m (Evli EUR 12.6m) and the adj. EBIT amounted to EUR -0.7m (Evli EUR -1.2m). The performance of Retail & Commerce was on the positive side, growing slightly y/y in comparable terms while successful cost control saw profitability improve to rather decent figures, with the adj. EBITDA-% up to 11.3%. In Utilities, profitability remained weak, as was still to be expected. 

Return to profitability next year
Overall, the Q3 report did not notably change our views on Solteq’s equity story. We assess a slightly slower pick-up in growth in the near-term than previously anticipated. We have slightly revised our 2023e estimates based mainly on the Q3 results. Solteq concluded the change negotiations in the Utilities-segment and expects annual cost savings of EUR 3.8m, to be visible largely in 2024. We expect the growth potential in Utilities to start to materialize more visibly in the second half of 2024 and with the cost savings the profitability to improve substantially next year. In Retail & Commerce we now expect a slightly more modest growth given the market situation, in comparable terms in the lower to mid single-digits with margins improving slightly y/y. For Solteq, we expect revenue to decline 2.5% in 2024, impacted by the divestment this year, and the adj. EBIT-% to improve to 3.4% from -5.6% in 2023e.

HOLD with a target price of EUR 0.85 (0.90)
In light of our revised estimates, we lower our TP to EUR 0.85 (0.90). On our estimates, the valuation is stretched on 2024e figures, but the upside potential is significant on 2025e figures, should the Utilities-segment start to perform closer to its potential. That path is, however, still riddled with uncertainty. 

Solteq - Some signs of improvement 

26.10.2023 | Earnings Flash

Solteq’s Q3 results were as expected rather weak but revenue turned to growth in comparable terms and profitability was better than feared. Revenue was at EUR 12.2m (Evli EUR 12.6m) and adj. EBIT at EUR -0.7m (Evli EUR -1.2m).

  • Net sales in Q3 were EUR 12.2m (EUR 14.4m in Q3/22), slightly below our estimates (Evli EUR 12.6m). Revenue declined 14.9% y/y in Q3. In comparable terms revenue grew by 1.9% y/y.
  • The operating profit and adj. operating profit in Q3 amounted to EUR -0.7m/-0.7m respectively (EUR -5.0m/-0.7m in Q3/22), above our estimates (Evli EUR -1.2m/-1.2m). 
  • In Utilities, profitability suffered from a heavy cost structure. The change negotiations were concluded in October and the company anticipates annual cost savings of EUR 3.8m. In Retail & Commerce the growth in comparable revenue and successful cost control resulted in improved profitability. 
  • Retail and commerce: revenue in Q3 amounted to EUR 9.2m (Q3/22: EUR 11.4m) vs. Evli EUR 9.3m. Revenue declined by 18.8% driven by lower demand and the divestment. The adj. EBIT was EUR 0.4m (Q3/22: EUR -0.1m) vs. Evli EUR -0.2m. 
  • Utilities: Revenue in Q3 amounted to EUR 3.0m (Q3/22: EUR 3.0m) vs. Evli EUR 3.3m. The adj. EBIT was EUR -1.0m (Q3/22: EUR -0.6m) vs. Evli EUR -1.0m. 
  • Guidance for 2023 (published 19.9.2023): group revenue is expected to be EUR 57-59m and the operating result negative (excl. divestment profit recognition). 

Solteq - Setting up future profitability

24.08.2023 | Company update

Solteq’s FY 2023 continues to look challenging, but cost savings measures being taken support the turnaround in 2024. We retain our HOLD-rating, TP EUR 1.1 (1.3).

Weak figures in Q2
Solteq reported Q2 results that were weaker than we had anticipated. Net sales in Q2 were EUR 14.3m (Evli EUR 16.0m), declining 20.4% y/y and 8.2% in comparable terms. The operating profit and adj. operating profit in Q2 amounted to EUR 6.3m and -1.9m respectively (Evli EUR 7.8m/-0.3m). According to Solteq the quarter was affected by weaker demand in the Retail & Commerce segment results and a heavy cost structure in Utilities but in line with the company’s own expectations. 

Cost savings support turnaround in 2024
Solteq announced the initiation of change negotiations in the Utilities segment, seeking annual savings of approx. EUR 3m. Measures are also being taken to improve the company’s overhead cost situation after the divestment of the Group’s ERP business based on Microsoft BC and LS Retail Solutions. Solteq expects its operating result (excl. profit recognition from the divestment) in 2023 to be slightly negative. Assuming the completion of the change negotiations as planned and during Q4/2023, due to related one-off items, we find the guidance to be challenging. This despite an anticipated pick-up in growth in Utilities due to starting customer deliveries and in Retail & Commerce due to previous project postponements and slight demand recovery. Our 2023e EBIT estimate is at EUR -1.6m. With the savings in Utilities, the segment is on track to push EBITDA-margins into the double digits next year supported by continued good demand, and we anticipate significant profitability improvements for Solteq in 2024e. 

HOLD with a target price of EUR 1.1 (1.3)
Valuation remains on the higher side in the near-term despite anticipated improvements. Long-term upside drivers from the Utilities segment, however, still remains in place. We retain our HOLD-rating but with continued uncertainty regarding the turnaround speed we lower out TP to EUR 1.1 (1.3).

Solteq - Tough quarter

23.08.2023 | Earnings Flash

Solteq’s Q2 results were quite weak and both revenue and profitability fell below our estimates. Revenue was at EUR 14.3m (Evli EUR 16.0m) and adj. EBIT at EUR -1.9m (Evli EUR -0.3m).

  • Net sales in Q2 were EUR 14.3m (EUR 17.9m in Q2/22), below our estimates (Evli EUR 16.0m). Revenue declined 20.4% y/y in Q2. The comparable revenue amounted to EUR 13.6m (EUR 14.8m), down by 8.2% y/y.
  • The operating profit and adj. operating profit in Q2 amounted to EUR 6.3m and -1.9m respectively (EUR 0.4m/1.3m in Q2/22), below our estimates (Evli EUR 7.8m/-0.3m). EBIT includes proceeds from the sale of the Group’s ERP business based on Microsoft BC and LS Retail Solutions.
  • According to Solteq, the second quarter performance was weak, mainly due to a weaker demand in the Retail & Commere segment. In Utilities, profitability suffered from a heavy cost structure. 
  • Retail and commerce: revenue in Q2 amounted to EUR 10.8m (Q2/22: EUR 14.3m) vs. Evli EUR 12.1m. Revenue declined by 24.3% driven by lower demand and the divestment. The adj. EBIT was EUR -0.3m (Q2/22: EUR 0.8m) vs. Evli EUR 0.5m. 
  • Utilities: Revenue in Q2 amounted to EUR 3.4m (Q2/22: EUR 3.6m) vs. Evli EUR 3.9m. The adj. EBIT was EUR -1.5m (Q2/22: EUR -0.7m) vs. Evli EUR -0.8m. 
  • Guidance for 2023 (published 3.5.2023): group revenue is expected to be EUR 60-62m and the operating result slightly negative (excl. divestment profit recognition). 

Solteq - Long road to healthy profitability ahead

05.05.2023 | Company update

Solteq reported slightly better than anticipated Q1 results. The short-term performance appears to be burdened more than anticipated by disproportionate overhead expenses, our views on the long-term development remain intact.

Slightly better than expected Q1 aided by good cost control 
Solteq reported Q1 results that were slightly better than anticipated. Revenue was in line with our estimates at EUR 16.9m (Evli EUR 17.1m) while the adj. operating profit of EUR 0.1m beat our cautious estimate of EUR -0.5m. In terms of segment performance, Retail & Commerce saw healthy and better than expected profitability despite the anticipated y/y revenue decline. The good profitability level was according to the company driven by an improved cost control. The Utilities-segment performed quite as expected, still clearly loss making following earlier product development challenges. Solteq also issued a guidance for 2023, expecting revenue to amount to EUR 60-62m and operating profit (excl. divestment profit recognition) to be slightly negative.  

Weaker in the short-term, long-term potential intact
The 2023 guidance was quite as expected, although our EBIT (excl. divestment profit recognition) estimate pre-Q1 was slightly positive. With Q1 stronger than we anticipated profitability-wise, we assume the anticipated burden of overhead expenses on Retail & Commerce in the short-term to be larger than we estimated. We have lowered our 2023 estimates slightly to fit the guidance but the revisions are in our view rather trivial. The investment story narrative continues to focus on 2024->, where the key success factor remains in the recovery and scalability of the Utilities-segment, and also to a lesser extent being able to adapt overhead expenses to the new company size. 

HOLD with a target price of EUR 1.3
With no material changes to our estimates or views, we retain our HOLD-rating and target price of EUR 1.3. Valuation remains stretched in the near-term, but now with the stronger balance sheet and scalability factors the long-term potential remains significant.

Solteq - Slightly better than expected Q1

04.05.2023 | Earnings Flash

Solteq’s Q1 results were rather decent considering earlier challenges and profitability was above our expectations. Revenue was at EUR 16.9m (Evli EUR 17.1m) and adj. EBIT at EUR 0.1m (Evli EUR -0.5m). Guidance for 2023 (published 3.5.2023): revenue is expected to be EUR 60-62m and operating profit (excl divestment profit recognition) slightly negative.

  • Net sales in Q1 were EUR 16.9m (EUR 19.2m in Q1/22), in line with our estimates (Evli EUR 17.1m). Revenue delinked 12.2% y/y in Q1. 
  • The operating profit and adj. operating profit in Q1 amounted to EUR -0.1m and 0.1m respectively (EUR 1.4m/1.6m in Q1/22), above our estimates (Evli EUR -0.5m/-0.5m). 
  • According to Solteq, the first quarter performance was moderate, and the profitability development was better than expected.
  • Retail and commerce: revenue in Q1 amounted to EUR 13.4m (Q1/22: EUR 14.9m) vs. Evli EUR 13.5m. Growth amounted to -9.8% driven by lower demand. The adj. EBIT was EUR 1.2m (Q1/22: EUR 1.5m) vs. Evli EUR 0.5m. 
  • Utilities: Revenue in Q1 amounted to EUR 3.5m (Q1/22: EUR 4.3m) vs. Evli EUR 3.6m. The adj. EBIT was EUR -1.2m (Q1/22: EUR 0.1m) vs. Evli EUR -1.0m. 
  • Guidance for 2023 (published 3.5.2023): group revenue is expected to be EUR 60-62m and the operating result slightly negative (excl. divestment profit recognition). Our estimates for revenue and adj. EBIT before the guidance was given were EUR 61.6m and EUR 0.4m. 

Solteq - Sizeable spring cleaning

20.04.2023 | Company update

Solteq intends to divest its ERP business based on Microsoft BC and LS Retail solutions. The valuation of the deal is quite attractive and would ease the company’s balance sheet situation, while near-term profitability is under further pressure.

Intention to divest a quite considerable part of its business
Solteq signed a business transfer agreement regarding the divestment of its ERP business based on Microsoft BC and LS Retail solutions to Azets. The revenue of the transferring business in 2022 was EUR 11.2 m and the operating profit was EUR 1.5m and as such represents a quite considerable part Solteq’s total business. The net debt-free purchase price of the business is a maximum of EUR 20m and the fixed purchase price is EUR 15m deducted by the net working capital of the business. Solteq will recognize an estimated one-time profit of EUR 8m (pre-tax) on the fixed purchase price in Q2. The transaction is estimated to be completed on May 2, subject to customary preconditions. Solteq withdrew its guidance due to the on-going transaction. 

Attractive valuation and easing of balance sheet pressure 
In light of the updated strategy, divestments were to be expected. Although the to be transferred business per se is in not fully non-core and has a healthy profitability, the deal makes sense given the attractive valuation. In terms of size the announced transaction in our view represents the bulk of possibly planned divestments, a further smaller transaction is still in our view somewhat likely. The main benefit of the transaction is in our view the valuation and easing of the balance sheet burden, as Solteq through its issued bond has been relatively indebted. In the short-term, the transaction will if completed add pressure on overhead expenses in relations to the business size and will likely induce actions to remedy the situation.

HOLD with a target price of EUR 1.3
Ultimately, our view of the transaction is quite neutral. The balance sheet improvement will provide financial leeway, but near-term profitability will be further constrained. We retain our target price of EUR 1.3 and HOLD-rating. 

Solteq - Financial gap year ahead

17.02.2023 | Company update

Solteq’s Q4 results were below our expectations, and the 2023 guidance appears softer than we had anticipated. We see the long-term investment case intact despite an incoming year of subpar performance.

Challenges visible in Q4
Solteq reported Q4 results below our expectations. Net sales in Q4 were EUR 16.9m (Evli EUR 17.4m), declining 7.5% y/y. The operating profit and adj. operating profit in Q4 amounted to EUR -1.2m and -0.8m respectively (Evli EUR 0.7m/0.7m). Solteq Digital’s performance was fairly in line with expectations, with a y/y decline in revenue and profitability. Solteq Software’s profitability was clearly below expectations, with an adj. EBIT of EUR -1.3m (Evli EUR 0.0m). The segment has been burdened by challenges in Solteq Utilities’ software development and we had evidently underestimated the magnitude of the impact on Q4. Solteq’s BoD as expected proposed that no dividend be paid. 

Guidance for 2023 softer than anticipated
Solteq’s 2023 guidance is soft in comparison with our pre-Q4 estimates, expecting revenue to remain on 2022 levels and EBIT to be positive. Solteq has typically not given numerical guidance ranges, which leaves room for speculation regarding profitability, but with the expected flat revenue development and cost pressure caused by inflation we now expect EBIT to be only slightly positive at EUR 0.8m. We expect the challenges faced in Solteq Software to continue during H1/23 and gradual improvement through the year, and the headwinds faced in Solteq Digital through the market demand situation to continue to have a slight negative effect.  

HOLD with a target price of EUR 1.3
Despite the weaker than expected Q4 and softer than anticipated expectations in 2023 we see no fundamental changes to the investment case. Financially 2023 will clearly be a gap year on group level. Upside continues to lie in the long-term development and success of profitably growing the Utilities-business and of interest for the investment case in the near-term will be the development of said business. 

Solteq - Challenges visible in earnings

16.02.2023 | Earnings Flash

Solteq’s Q4 results were weak and below our expectations, with revenue at EUR 16.9m (Evli EUR 17.4m) and adj. EBIT at EUR -0.8m (Evli EUR 0.7m), with the earlier noted challenges having a larger than anticipated impact. 2023 guidance is below our expectations, with revenue expected to remain at 2022 levels and EBIT to be positive.

  • Net sales in Q4 were EUR 16.9m (EUR 18.3m in Q4/21), slightly below our estimates (Evli EUR 17.4m). Growth in Q4 amounted to -7.5% y/y. 
  • The operating profit and adj. operating profit in Q4 amounted to EUR -1.2m and -0.8m respectively (EUR 1.3m/1.4m in Q4/21), below our estimates (Evli EUR 0.7m/0.7m). 
  • Q4 challenges relates to earlier communicated challenges in Solteq Utilities’ software development and a weakened demand situation. 
  • Solteq Digital: revenue in Q4 amounted to EUR 10.3m (Q4/21: EUR 11.7m) vs. Evli EUR 10.8m. Growth amounted to -11.9%. The adj. EBIT was EUR 0.5m (Q4/21: EUR 1.4m) vs. Evli EUR 0.7m. 
  • Solteq Software: Revenue in Q4 amounted to EUR 6.6m (Q4/21: EUR 6.6m) vs. Evli EUR 6.6m. The adj. EBIT was EUR -1.3m (Q4/21: EUR -0.0m) vs. Evli EUR 0.0m. 
  • Guidance for 2023: group revenue is expected to remain at same levels as in 2022 and operating profit to be positive.
  • Dividend proposal: Solteq’s BoD proposes than no dividend be paid (Evli EUR 0.00)

Solteq - CMD: Turning the tide 

19.01.2023 | Company update

Solteq presented its new strategy in its CMD 2023 event, reiterating near-term challenges and setting forth steps to build a stronger Solteq in the long-term. We retain our HOLD-rating and adjust our TP to EUR 1.3 (1.2)

New strategy set
Solteq hosted its Capital Markets Day 2023 on January 18th, giving more insight into the recently set new strategy. Solteq had previously announced that it will operate under two new segments, Retail & Commerce and Utilities. Long-term growth and EBIT-% targets for the segments were set at 8%/8% and 15%/18% respectively. The company’s primary focus in the near-term will be on profitability, while also seeking to return on a growth path.

Near-term softness, building for the long-term
Solteq is heading into the new strategy period with a heavily renewed management team, including both new segments. For the short-term, Solteq reiterated the challenges faced in product development and macroeconomic headwinds. For the Utilities-segment, 2023 is expected to be a turn-around year, with ramp-up towards normalized operations and healthier financials towards H2/2023. In the Retail & Commerce-segment the growth ambitions in our view appear reasonable, although expectations in the near-term seem muted due to current headwinds. Newly appointed EVP Jesper Boye previously successfully headed Solteq’s business in Denmark and we see potential in future pan-Nordic growth. In our view the key takeaway from the CMD was the confirmation of Solteq’s own abilities and focus on near-term measures to build a much more capable Solteq towards the latter part of the strategy period.

HOLD with a TP of EUR 1.3 (1.2)
From a valuation perspective, the near-term remains subdued by challenges in the Utilities business. The significant upside potential in our view lies in the turnaround and tapping into the other Nordic countries, assuming the implementation of Datahub in Sweden. We adjust our TP to EUR 1.3 (1.2) due to a slight rebound in peer multiples, HOLD-rating intact.

Solteq - New challenges met

28.10.2022 | Company update

Solteq’s Q3 was somewhat below our expectations and most notably, challenges were seen now also in Solteq Digital. We adjust our TP to EUR 1.2 (1.5), rating still HOLD.

New challenges from Solteq Digital
Solteq reported Q3 results below our already rather low expectations. Net sales declined 3.7% y/y to EUR 14.4m (Evli EUR 14.7m). The operating profit and adj. operating profit amounted to EUR -5.0m and -0.5m respectively (EUR 1.1m/1.2m in Q3/21), below our estimates (Evli EUR -4.1m/0.3m). Solteq Software’s EBIT was negative as expected while the modest growth was a positive. Solteq Digital unexpectedly showed a rather notable 9.6% y/y growth decline and profitability as a result was also on the weaker side. Problems appear to relate market demand and some delays and hesitation in customer activity.

Near-term outlook not the best
With the added woes of Solteq Digital, the near-term for Solteq looks rather challenging. Fortunately, Solteq Software showed some signs of the product development related challenges being alleviated and customer demand remains healthy. Nonetheless, with the problems being more fundamental in nature a clear recovery appears more likely to materialize during H1/2023. The market sentiment driven challenges in Solteq Digital are quite worrisome, with the segment having been the main driver of profitability. The challenges are likely to continue to some extent going forward as customers review investment needs, but a larger deterioration still appears unlikely supported by necessity-based investments. With the challenges, our expectations for 2023 remain on the softer side. Visibility is also subdued by the market environment and the pace at which Solteq Software, with the key Utilities business, is able to ramp-up growth again.

HOLD with a target price of EUR 1.2 (1.5)
With the added concerns and reduced visibility near-term upside remains somewhat limited although Solteq still exhibits significant and proven potential. On our estimates valuation upside relies on mid-term potential or significant improvements next year. We lower our TP to EUR 1.2 (1.5), HOLD-rating intact.

Solteq - Certainly not the best of quarters

27.10.2022 | Earnings Flash

Solteq’s Q3 was below the already weak expectations, with revenue at EUR 14.4m (Evli EUR 14.7m) and adj. EBIT at EUR -0.5m (Evli EUR 0.3m). The weakness relates to earlier communicated challenges in Solteq Utilities’ software development and lower revenue and profitability in Solteq Digital.

  • Net sales in Q3 were EUR 14.4m (EUR 14.9m in Q3/21), slightly below our estimates (Evli EUR 14.7m). Growth in Q3 amounted to -3.7% y/y. 
  • The operating profit and adj. operating profit in Q3 amounted to EUR -5.0m and -0.5m respectively (EUR 1.1m/1.2m in Q3/21), below our estimates (Evli EUR -4.1m/0.3m). 
  • Q3 challenges relates to earlier communicated challenges in Solteq Utilities’ software development and lower revenue and profitability in Solteq Digital. Write-downs relating to Solteq Robotics had a negative one-off impact of EUR 4.4m on EBIT.
  • Solteq Digital: revenue in Q3 amounted to EUR 8.6m (Q3/21: EUR 9.6m) vs. Evli EUR 9.4m. Growth amounted to -9.6%. The adj. EBIT was EUR 0.2m (Q3/21: EUR 0.9m) vs. Evli EUR 0.8m. Demand in key business areas, such as digital business and commerce solutions, is expected to remain at a good level during the ongoing quarter.
  • Solteq Software: Revenue in Q3 amounted to EUR 5.7m (Q3/21: EUR 5.4m) vs. Evli EUR 5.3m. The adj. EBIT was EUR -0.7m (Q3/21: EUR 0.3m) vs. Evli EUR -0.5m. Growth was 6.6%. The business outlook for Solteq Software is expected to remain positive.
  • Guidance for 2022 (reiterated): group revenue is expected to remain at same levels as in 2021 and operating profit to be negative.

Solteq - Headwinds grow stronger

20.09.2022 | Company update

Solteq issued its second profit warning for 2022, with challenges in both segments and significant write-offs relating to the Solteq Robotics business. We downgrade our rating to HOLD (BUY) with a TP of EUR 1.5 (2.7).

Second profit warning for 2022
Solteq issued its second profit warning this year. With the new guidance Solteq expects group revenue to stay at the same level as in the previous year (prev. grow) and operating profit to be negative (prev. weaken). A key item in the downgrade is the write-off of product development investments made into the Solteq Robotics business, resulting in a one-off impact of approx. EUR 4.4m in the third quarter off 2022. Product development costs of Solteq Utilities have also continued to affect the business and project and service delivery costs of Solteq Utilities have increased. The revenue and profitability of the Solteq Digital segment have also weakened.

Some challenges across the board
Solteq had issued a profit warning in May, largely relating to challenges in the Utilities business. The challenges relate to productization of the solutions and performance was hampered by resourcing challenges relating to deliveries and customer project fixes. The previous guidance put quite some catch-up pressure on operational performance in H2/2022 after the weak Q2 results. Those risks appear to have materialized and with Solteq Digital also seeing some continued weakness, the overall market uncertainties may be starting to show. The Solteq Robotics business has seen commercialization challenges due to the pandemic and we have not emphasized any potential in our estimates. The write-off is still notably negative given previous fairly upbeat comments.

HOLD (BUY) with a target price of EUR 1.5 (2.7).
On our revised estimates, excl. the one-offs, valuation on current expected current year performance is quite stretched. Uncertainty is clearly elevated and overshadows coming years earnings improvement potential. We downgrade our rating to HOLD (BUY) with a target price of EUR 1.5 (2.7).

Solteq - Near-term challenges to overcome

12.08.2022 | Company update

Solteq reported weak Q2 figures, mainly due to challenges in the Utilities business. Despite near-term uncertainty, the investment case in terms of focus areas, demand, and increased share of software still looks favourable.

Q2 figures well below expectations
Solteq reported weak Q2 figures. Revenue declined 3.0% y/y to EUR 17.9m (Evli EUR 19.9m) while EBIT fell clearly y/y to EUR 0.4m (Evli EUR 2.0m). Solteq Software performed well below expectations, with revenue of EUR 6.5m (Evli EUR 7.3m) and adj. EBIT of EUR -0.9m (Evli EUR 0.1m). Solteq Digital was also slightly below expectations due to some delays in the start of certain customer projects, but relative profitability still remained at a good level. Solteq still kept its guidance intact, expecting Group revenue to grow and profit to weaken.

Challenges to overcome in Utilities business
The main reason behind the weak Q2 figures was challenges relating to product development in the Solteq Utilities business. The Utilities business to our understanding suffered from a combination of rapid growth, having previously signed several significant orders, and non-sufficient standardization of products. As a result, resources were in sub-optimal use due to more time having to be spent on developing and improving products as opposed to project deliveries. The situation is being alleviated but we see that some catch-up will be seen during H2. The more fundamental issue relating to product development and standardization will likely be a lengthier process, and Solteq noted an updated strategy being worked on. Notably, Solteq did not amend its guidance, which implies expectations of good performance during H2.

BUY-rating with a target price of EUR 2.7 (3.4)
Valuation on our 2022e estimates is stretched, but we still see that the market demand, strategic focus on the Utilities business and recurring revenue potential support the investment case in the mid-term. With the near-term challenges and uncertainty, we adjust our TP to EUR 2.7 (3.4), BUY-rating intact.

Solteq - Challenging quarter

11.08.2022 | Earnings Flash

Solteq’s Q2 fell short our expectations, with revenue at EUR 17.9m (Evli EUR 19.9m) and adj. EBIT at EUR 0.6m (Evli EUR 2.0m). Challenges were caused by the development of software products in the Solteq Utilities business and the resulting increase in project delivery costs.

  • Net sales in Q2 were EUR 17.9m (EUR 18.5m in Q2/21), below our estimates (Evli EUR 19.9m). Growth in Q2 amounted to -3.0% y/y. 
  • The operating profit and adj. operating profit in Q2 amounted to EUR 0.4m and 0.6m respectively (EUR 2.4m/2.5m in Q2/21), clearly below our estimates (Evli EUR 2.0m/2.0m). 
  • Q2 was challenging for Solteq, with main challenges caused by the development of software products in the Solteq Utilities business and the resulting increase in project delivery costs. Despite the challenges, the outlook for Solteq Group’s international and domestic business is estimated to remain positive.
  • Solteq Digital: revenue in Q2 amounted to EUR 11.4m (Q2/21: EUR 11.9m) vs. Evli EUR 12.6m. Growth amounted to -4.1%. The adj. EBIT was EUR 1.5m (Q2/21: EUR 1.9m) vs. Evli EUR 1.9m. Demand in key business areas, such as digital business and commerce solutions, is expected to remain at a good level during the ongoing quarter.
  • Solteq Software: Revenue in Q2 amounted to EUR 6.5m (Q2/21: EUR 6.6m) vs. Evli EUR 7.3m. The adj. EBIT was EUR -0.9m (Q2/21: EUR 0.6m) vs. Evli EUR 0.1m. Growth was -0.9%. The business outlook for Solteq Software is expected to remain positive.
  • Guidance for 2022 (reiterated): group revenue is expected to grow and operating profit to weaken.

Solteq - Slower realization of potential

30.05.2022 | Company update

Solteq lowered its guidance for 2022 due to challenges relating to the Utilities business. With the downgrade, the company’s journey to realize its potential is prolonged. We lower our TP to EUR 3.4 (5.0), rating remains BUY.

Guidance for 2022 lowered
Solteq issued a profit warning, lowering its guidance for 2022 for both revenue and operating profit. According to the new guidance revenue in 2022 is expected to grow and operating profit to weaken, while the company previously expected revenue to grow clearly and operating profit to improve. The guidance downgrade is driven in particular by the Utilities business, where Solteq sees that increased investments and project delivery costs will weaken the profitability and reduce customer invoicing.

Scalability potential not materializing as expected
We have lowered our estimates for the on-going year, with a quite notable decrease in operating profit. We now expect 2022 revenue of EUR 75.0m (prev. EUR 77.0m), for an implied growth of 8.7%. Taking into account the more recent acquisitions, the estimated organic growth is heading towards lower single-digit figures. We have lowered our operating profit estimates by some 15% to EUR 6.6m. All the made revisions relate to our estimates for Solteq Software. The reasons for the guidance downgrade appear to point to near-term challenges, but we expect a spill-over effect on 2023 thus slowing down the expected scaling of Solteq Software and with the added uncertainty we have also lowered our 2023 operating profit estimate by some 15%. The overall narrative is still seemingly unchanged, only the expected scaling of Solteq Software appears delayed.

BUY with a target price of EUR 3.4 (5.0)
Following our estimates revisions we lower our target price to EUR 3.4 (5.0) and retain our BUY-rating. We currently expect profitability in 2023 to improve to 2021 levels, with notable improvement potential still present through Solteq Software. With the bumps in the road we now value Solteq close to the IT services peers, having previously justified a larger premium.

Solteq - Lowers 2022 guidance

25.05.2022 | Analyst comment

Solteq issued a profit warning, lowering both its guidance for revenue and operating profit by a notch. Revenue in 2022 is now expected to grow (prev. grow clearly) and operating profit to weaken (prev. improve).

  • Solteq’s new guidance for 2022: Solteq Group’s revenue is expected to grow and profit to weaken.
  • Previous guidance: revenue is expected to grow clearly and operating profit to improve.
  • Solteq noted as reasons for the guidance downgrade the impact of higher-than-estimated investments in product development in Solteq’s Utilities business unit along with increased project delivery costs on profitability and reduced customer invoicing during the on-going financial year.
  • Our estimates for 2022e revenue and operating profit have been EUR 77.0m and 7.7m respectively, implying a revenue growth of 11.6% and ~8% improvement in operating profit y/y. The new guidance implies single-digit growth and compared with our estimates an over 10% decline in operating profit in 2022e.
  • The guidance downgrade is unfortunate for the near-term, but does not based on the reasons stated appear to give reason to assume that the long-term scalability drivers wouldn’t remain intact. 

Solteq - Steadily realizing potential

29.04.2022 | Company update

Solteq’s Q1 figures were well in line with expectations. Solteq in our view is continuing to steadily realize its scalability potential and we expect double-digit growth in 2022. We retain our BUY-rating and TP of EUR 5.0.

Q1 well in line with expectations
Solteq reported Q1 result well in line with our expectations. Net sales were EUR 19.2m (Evli EUR 18.9m), with growth of 10.7%. Roughly a third of the growth was organic. The operating profit and adj. operating profit in Q1 amounted to EUR 1.4m and 1.6m respectively (Evli EUR 1.5m/1.5m). Solteq Software’s and Solteq Digital’s y/y growth and adj. EBIT figures were 5.6%/19.7% and EUR 1.5m/0.1m respectively, with both segments faring quite as expected. Solteq reiterated its guidance, expecting group revenue to grow clearly and the operating profit to improve.

Double-digit growth seen in 2022
We have made essentially no changes to our top-line and bottom-line figures. We expect revenue to grow 11.6% y/y in 2022e. Our growth estimates assume continued modest growth in Solteq Digital and over 20% growth in Solteq Software, in line with the long-term segment targets of over 5% and 20% growth. Solteq Software’s growth is clearly aided by the acquisition of Enerity Solutions, but we see organic growth picking up through good demand and ramp-up of recurring revenue. We expect EBIT to improve to EUR 7.7m (2021: 7.1m) through slight gains in both segments. We expect Solteq Digital’s margins to remain steady in the coming years. For Solteq Software we expect the scalability potential to start to show in the coming years.

BUY with a target price of EUR 5.0
Solteq’s valuation is currently slightly below the IT-services peer median, which in our view is unjustified given the healthy growth and profitability trend and expectations and increasing share of recurring revenue. We value Solteq at ~20x 2022e P/E. Our target price remains EUR 5.0 and rating BUY.

Solteq - Well in line with expectations

28.04.2022 | Earnings Flash

Solteq’s Q1 was in line with our expectations, with revenue at EUR 19.2m (Evli EUR 18.9m) and adj. EBIT at EUR 1.6m (Evli EUR 1.5m). Guidance for 2022 reiterated: group revenue is expected to grow clearly and the operating profit to improve.

  • Net sales in Q1 were EUR 19.2m (EUR 17.4m in Q1/21), in line with our estimates (Evli EUR 18.9m). Growth in Q1 amounted to 10.7% y/y, of which approximately a third was organic growth. 
  • The operating profit and adj. operating profit in Q1 amounted to EUR 1.4m and 1.6m respectively (EUR 2.2m/2.3m in Q1/21), in line with our estimates (Evli EUR 1.5m/1.5m). 
  • Solteq Digital: revenue in Q1 amounted to EUR 11.8m (Q1/21: EUR 11.2m) vs. Evli EUR 12.0m. Growth amounted to 5.6%. The adj. EBIT was EUR 1.5m (Q1/21: EUR 1.4m) vs. Evli EUR 1.5m. Demand in key areas, such as digital business and commerce solutions, is expected to remain good during the on-going quarter. 
  • Solteq Software: Revenue in Q1 amounted to EUR 7.4m (Q1/21: EUR 6.2m) vs. Evli EUR 6.9m. The adj. EBIT was EUR 0.1m (Q1/21: EUR 0.9m) vs. Evli EUR 0.0m. Growth was 19.7%. The business outlook is expected to remain positive.
  • Guidance for 2022 (reiterated): group revenue is expected to grow clearly and operating profit to improve.

Solteq - Focusing on growth

18.02.2022 | Company update

Solteq's growth remained good in Q4, but investments impacted on profitability. With growth investments on the rise, we lower our profitability estimates for 2022 and our TP to EUR 5.0 (6.2), with our BUY-rating intact.

Growth on track but investments burdened profitability
Solteq reported weaker Q4 results on the profitability side while growth still remained at a good pace. Revenue grew 11.4% to EUR 18.3m (EUR 18.0m Evli) and the operating profit amounted to EUR 1.3m (EUR 2.0m Evli). Compared with our estimates, profitability was weaker in Solteq Software, where adj. EBIT fell to EUR 0.0m (EUR 0.8m Evli). Profitability was impacted by growth investments as well as increases in subcontracting and general costs. Investments were made into software development and into international growth. Solteq’s BoD proposes a dividend of EUR 0.10 per share (EUR 0.11 Evli).

Estimates lowered as investments pick up
Solteq expects its revenue in 2022 to grow clearly and operating profit to improve compared with 2021. We have not made any significant changes to our revenue estimates but have lowered our profitability estimates by quite a bit, now expecting 2022 operating profit of EUR 7.8m (prev. 10.5m). Although it is unfortunate that profitability scaling in Solteq Software is not going as fast as we (in retrospect probably overoptimistically) had expected, prioritizing growth is still more beneficial with demand drivers in place and apart from cost growth from subcontracting the operational profitability still appears to be on track. We expect to see the growth investments weighing more heavily on H1 and with pick-up in growth and recurring revenue we expect to see figures improve towards the end of the year, creating good potential for the following years.

BUY-rating with a target price of EUR 5.0 (6.2)
With our estimates revisions we adjust our target price to EUR 5.0 (6.2), valuing Solteq at approx. 21x 2022e P/E. Solteq has likely been somewhat cautious in its profitability guidance, and we still see potential for some improvement during the year as visibility improves. We retain our BUY-rating.

Solteq - Investments weakened profitability

17.02.2022 | Earnings Flash

Solteq’s Q4 was below our lowered pre-Q4 expectations, with revenue at EUR 18.3m (Evli EUR 18.0m) and adj. EBIT at EUR 1.4m (Evli EUR 2.0m). Guidance for 2022: group revenue is expected to grow clearly and the operating profit to improve. Dividend proposal EUR 0.10 per share (Evli EUR 0.11).

  • Net sales in Q4 were EUR 18.3m (EUR 16.4m in Q4/20), in line with our estimates (Evli EUR 18.0m). Growth in Q4 amounted to 11.4% y/y, of which the larger part was organic growth.
  • The operating profit and adj. operating profit in Q3 amounted to EUR 1.3m and 1.4m respectively (EUR 1.8m/2.0m in Q4/20), below our estimates (Evli EUR 2.0/2.0m). Solteq Software’s profitability was below expectations due to investments into product development and internationalization.
  • Solteq Digital: revenue in Q4 amounted to EUR 11.7m (Q4/20: EUR 10.6m) vs. Evli EUR 11.4m. Growth amounted to 10.3%. The adj. EBIT was EUR 1.4m (Q4/20: EUR 0.9m) vs. Evli EUR 1.2m. Demand in key areas, such as digital business and commerce solutions, is expected to remain good during 2022.
  • Solteq Software: Revenue in Q4 amounted to EUR 6.6m (Q4/20: EUR 5.8m) vs. Evli EUR 6.6m. The adj. EBIT was EUR 0.0m (Q4/20: EUR 1.1m) vs. Evli EUR 0.8m. Growth was 13.3%. The business outlook is expected to remain positive.
  • Guidance for 2022: group revenue is expected to grow clearly and operating profit to improve.
  • Dividend proposal: Solteq’s BoD proposes a dividend of EUR 0.10 per share (Evli EUR 0.11).

Solteq - Some continued softness seen

15.02.2022 | Preview

Solteq reports Q4 results on February 17th. We foresee some continued softness due to the current environment but continue to expect earnings improvement in 2022. We retain our BUY-rating with a TP of EUR 6.2 (6.8).

Some softness expected in Q4
Solteq reports Q4 results on February 17th. Solteq’s Q3 results were softer than anticipated, as deliveries for two large-scale retail customers were postponed as a result of the impact of the global component shortage. Revenue still grew by over 10%, mainly organically, and the adj. operating profit margin was at a fairly decent 8.1%. We had previously expected fourth quarter figures to turn back on track with the start-up of the postponed projects. With the macroeconomic uncertainties still present we anticipate some softness to still be seen in the fourth quarter and have slightly lowered our estimates, still expecting fairly good growth but slightly lower margins y/y.

Potential remains but market uncertainties a disturbance
Solteq in our view remains in a good position to continue revenue and earnings growth in 2022. We anticipate the recurring revenue from the implemented Utilities business projects to start to show. We see that the demand for Solteq’s solutions, in particular within utilities and ecommerce, should under normalized circumstances remain at a healthy level. The market environment has however been somewhat challenging and has not appeared to improve significantly going into 2022. With the current uncertainties we have lowered our 2022e EBIT estimates by some 9% but still see room for double-digit y/y growth in operating profit. We expect revenue of EUR 76.3m and an adj. operating profit margin of 13.8%.

BUY with a target price of EUR 6.2 (6.8)
With our estimates revisions and current uncertainties, we adjust our TP to EUR 6.2 (6.8) and retain our BUY-rating. Our TP values Solteq at ~17x 2022 P/E, which is still fairly low, and upside potential remains solid should the market environment not threaten the earnings growth track.

Solteq - Bumps on the road

29.10.2021 | Company update

Solteq’s Q3 was weaker than expected due to two project postponements. Uncertainty has increased but Solteq is still well on its way toward solid growth and profitability.

Two project postponements drove weaker Q3 figures
Solteq’s Q3 results took an unfortunate turn from the solid development trend so far during 2021. Net sales grew slower than expected by 12.2% y/y to EUR 14.9m (Evli EUR 16.4m). The adj. operating profit declined slightly to EUR 1.2m (Evli EUR 2.0m). Solteq Digital grew 4.3% to EUR 9.5m (Evli EUR 10.4m) and the adj. EBIT improved slightly to EUR 0.9m (Evli EUR 1.1m) while Solteq Software grew 29.7% to EUR 5.4m (Evli EUR 6.0m) and the adj. EBIT declined slightly to EUR 0.3m (Evli EUR 1.0m). The Q3 results were mainly impacted by the postponement of two larger customer deliveries in the retail-segment due to the prevailing component shortage situation and to some extent by an increase in subcontracting costs due to a lack of specialists in the IT-sector.

Larger part of Q3 concerns look to be temporary
At least on paper the challenges faced in Q3 appear to be of temporary nature. The postponements should have a clearly smaller impact on Q4. The prevailing demand uncertainty due to the pandemic, the component shortage and lack of industry specialists, however, are a concern, but to our understanding no new postponements are seen right now. The share of subcontracting is relatively low but has been increasing and future growth could come at the cost of margins and vice versa. Potential cost increases may in the future ultimately end up being absorbed by the customer. We have made some minor downward tweaks to our Q4 estimates but no larger changes to our coming year estimates.

BUY with a target price of EUR 6.8 (8.0)
We see good potential for Solteq returning back on its H1 track but with our minor estimates and higher uncertainty we lower our target price to EUR 6.8, with our BUY-rating intact. Our TP values Solteq on a slight premium to IT-services peers on 2021e P/E and on par with peers on 2022e P/E.

Solteq - Some challenges faced

28.10.2021 | Earnings Flash

Solteq’s Q3 was below our expectations, with revenue at EUR 14.9m (Evli EUR 16.4m) and adj. EBIT at EUR 1.2m (Evli EUR 2.0m). Figures were affected by customer project postponements due to the on-going component shortage. Guidance intact: group revenue in 2021 is expected to grow clearly and the operating profit to improve clearly.

  • Net sales in Q3 were EUR 14.9m (EUR 13.3m in Q3/20), below our estimates (Evli EUR 16.4m). Growth in Q3 amounted to 12.2% y/y, of which the larger part was organic growth. 22.6% of sales came from outside of Finland.
  • The operating profit and adj. operating profit in Q3 amounted to EUR 1.1m and 1.2m respectively (EUR 1.4m/1.4m in Q3/20), below our estimates (Evli EUR 2.0/2.0m). Profitability was affected by the postponement of two larger customer projects in the retail sector due to the on-going component shortage as well higher subcontracting prices due to a shortage of IT-sector specialists.
  • Solteq Digital: revenue in Q3 amounted to EUR 9.5m (Q3/20: EUR 9.2m) vs. EUR Evli 10.4m. Growth amounted to 4.3%. The adj. EBIT was EUR 0.9m (Q3/20: EUR 0.8m) vs. Evli EUR 1.1m. Recurring revenue 37.6% of the segment’s revenue. The segment is expected to continue to develop favourably.
  • Solteq Software: Revenue in Q3 amounted to EUR 5.4m (Q3/20: EUR 4.1m) vs. Evli EUR 6.0m. The adj. EBIT was EUR 0.3m (Q3/20: EUR 0.5m) vs. Evli EUR 1.0m. Growth was 29.7%. Recurring revenue 31.5% of the segment’s revenue. The segment is expected to continue to develop favourably.
  • Guidance for 2021 intact: group revenue is expected to grow clearly and operating profit to improve clearly.

Solteq - Good performance across the board

13.08.2021 | Company update

Solteq grew faster than expected in Q2, with Solteq Digital returning to clear growth. The outlook is now looking even better with the pick-up in demand in Solteq Digital and we expect good performance across the board. We raise our TP to EUR 8.0 (7.2), BUY-rating intact.

Rapid growth in Q2, Solteq Digital surprised positively
Solteq reported Q2 figures above our estimates. Revenue growth was clearly faster than expected, with growth of 23% to EUR 18.5m (Evli EUR 17.1m). Solteq Software as expected continued at a very rapid growth pace of 43%, while to our surprise Solteq Digital moved to double-digit growth, aided by good demand in retail, after having posted lower growth figures for the past year. The adj. EBIT was quite in line with our estimates at EUR 2.5m (Evli EUR 2.3m). Our overestimation of Solteq Software’s profitability was compensated by the over 15% EBIT-margin (target >8%) in Solteq Digital supported by the growth in the quarter.

Poised for double digit growth and margins in 2021
We have slightly raised our 2021 estimates for revenue and EBIT to EUR 71.4m (prev. 68.3m) and EUR 9.6m (prev. 9.2m). We expect Solteq Software to continue to grow very rapidly supported by the backlog of Utilities project deliveries. With the large projects sizes the recurring revenue should start to show more strongly in 2022 and we estimate only minor EBITDA-margin improvement in 2021. We expect the good demand in Solteq Digital to continue to show throughout the year and for the growth also to be reflected positively in the segment’s profitability. Positive signs were also seen in the commercialization of the Solteq Robotics solutions through a few pilot projects, with the pandemic having slowed down development in the near past.

BUY-rating with a target price of EUR 8.0 (7.2)
On our minor estimates revisions and overall good progress we raise our target price to EUR 8.0 (7.2). Valuation of ~17x 2022 P/E is not particularly challenging given the growth and profitability. We retain our BUY-rating.

Solteq - Growing faster than expected

12.08.2021 | Earnings Flash

Solteq’s Q2 was slightly above expectations, with revenue at EUR 18.5m (Evli EUR 17.1m) and adj. EBIT at EUR 2.5m (Evli EUR 2.3m). Guidance intact: group revenue in 2021 is expected to grow clearly and the operating profit to improve clearly.

  • Net sales in Q2 were EUR 18.5m (EUR 15.1m in Q2/20), slightly above our estimates (Evli EUR 17.1m). Growth in Q2 amounted to 22.6% y/y, of which around four fifths was organic growth. 21.4% of sales came from outside of Finland.
  • The operating profit and adj. operating profit in Q1 amounted to EUR 2.4m and 2.5m respectively (EUR 1.5m/1.5m in Q2/20), in line with our estimates (Evli EUR 2.3/2.3m).
  • Solteq Digital: revenue in Q2 amounted to EUR 11.9m (Q2/20: EUR 10.5m) vs. EUR Evli 10.5m. The adj. EBIT was EUR 1.9m (Q2/20: EUR 1.1m) vs. Evli EUR 1.1m. The segment is expected to develop steadily during the rest of the year.
  • Solteq Software: Revenue in Q2 amounted to EUR 6.6m (Q2/20: EUR 4.6m) vs. Evli EUR 6.6m. The adj. EBIT was EUR 0.6m (Q2/20: EUR 0.4m) vs. Evli EUR 1.2m. Growth was 44.6%. Recurring revenue 28.8% of the segment’s revenue. The Partiture Oy acquisition had a slight positive impact on growth. The business outlook for the segment is expected to remain positive
  • Guidance for 2021 intact: group revenue is expected to grow clearly and operating profit to improve clearly.

Solteq - Steaming ahead

30.04.2021 | Company update

Solteq posted solid Q1 figures, clearly above our estimates. We have made clear upward revisions to our estimates with on better than expected growth and profitability. We adjust our target price to EUR 7.2 (4.5), BUY-rating intact.

Clear earnings beat across the board
Solteq reported solid Q1 figures, clearly beating our estimates. Net sales grew 10.9% to EUR 17.4m (Evli 16.5m) and EBIT improved to EUR 2.2m (Evli EUR 0.9m). A clear highlight for the first quarter was the mainly organic 43.1% growth of Solteq Software, aided by deliveries of the orders received within the Utilities business. The profitability figures of Solteq Digital were surprisingly good, with EBIT doubling compared to the comparison period, to our understanding mainly driven by high utilization rates and streamlining of operations. Solteq upgraded its profitability guidance ahead of Q1, now also expecting the operating profit to grow clearly (prev. grow). This was not too surprising, as we had already in conjunction with Q4 questioned the guidance softness.

Estimates raised quite a bit
We have clearly raised our estimates after the solid first quarter figures. We now expect revenue growth of 13.0% (prev. 8.9%), driven mainly by Solteq Software and customer deliveries in the Utilities business. We expect pick-up in growth of Solteq Digital in the latter half of the year, as easing of the pandemic should increase demand in some of the harder hit sectors. We have also raised our EBIT estimate to EUR 9.2m (prev. 6.7m). We see limited margin upside potential going forward in the less scalable Solteq Digital segment while Solteq Software still has a lot more potential once the recurring revenue from the deliveries now being made start ramping up.

BUY with a target price of EUR 7.2 (4.5)
Solteq has seen a rather hefty share price rally in the past year, being up over 400%. On our revised estimates valuation for the “new” Solteq still does not appear overly challenging. We raise our target price to EUR 7.2 (4.5), valuing Solteq at 24x 2021 P/E and retain our BUY-rating.

Solteq - Stellar start to the year

29.04.2021 | Earnings Flash

Solteq’s Q1 was clearly above expectations, with revenue at EUR 17.4m (Evli EUR 16.5m) and comp. EBIT at EUR 2.2m (Evli EUR 0.9m). Solteq raised its guidance ahead of Q1, expecting that Group revenue in 2021 will grow clearly and that the operating profit will improve clearly.

  • Net sales in Q1 were EUR 17.4m (EUR 15.7m in Q1/20), slightly above our estimates (Evli EUR 16.5m). Growth in Q1 amounted to 10.9% y/y. 21.6% of sales came from outside of Finland.
  • The operating profit and adj. operating profit in Q1 amounted to EUR 2.2m and 2.3m (EUR 0.7m/0.9m in Q1/20), clearly above our estimates (Evli EUR 0.9/0.9m).
  • Solteq Digital: revenue in Q1 amounted to EUR 11.2m (Q1/20: EUR 11.3m) vs. EUR Evli 11.1m. The comp. EBIT was EUR 1.3m (Q1/20: EUR 0.7m) vs. Evli EUR 0.5m. The segment is expected to develop steadily during the current quarter.
  • Solteq Software: Revenue in Q1 amounted to EUR 6.2m (Q1/20: EUR 4.3m) vs. Evli EUR 5.4m. The comp. EBIT was EUR 0.9m (Q1/20: EUR 0.2m) vs. Evli EUR 0.5m. Growth was 43.1% and mainly organic. Recurring revenue 29.1% of the segment’s revenue. The Partiture Oy acquisition has a slight positive impact on growth. The business outlook for the segment is expected to remain positive
  • Guidance for 2021 (updated 27.4.): group revenue is expected to grow clearly and operating profit to improve clearly (added).

Solteq - Continued solid performance seen

26.02.2021 | Company update

Solteq reported slightly better than expected Q4 results. The solid performance is set to continue, and we see clear potential for a doubling of EPS in the coming years. We retain our BUY-rating with a target price of EUR 4.5.

Q4 slightly above expectations
Solteq reported slightly better than expected Q4 results. Revenue amounted to EUR 16.4m (Evli EUR 16.1m) and comp. EBIT to EUR 2.0m (Evli EUR 1.7m). Comp. growth amounted to 9.3%. The BoD proposed a dividend distribution of EUR 0.15 per share (Evli EUR 0.06). To our understanding the high payout ratio is due to no dividend payment in 2019, as such corresponding to an accrued two-year distribution, and we do not expect as high relative payout in the future.

2021 outlook favourable
In 2021 Solteq expects Group revenue to grow clearly and operating profit to improve. The profitability guidance sounds soft but with the on-going pandemic and the related uncertainties the guidance is understandably more cautious this early on in the year. We expect sales growth of 8.9% (prev. 3.7%) and an approx. 14% improvement in comp. EBIT to EUR 6.6m (prev. 5.5m). Growth and profitability is on our estimates largely attributable to Solteq Software, in particular due to project implementations and thereafter following accrual of recurring revenue from the Utilities-sector orders received in 2020. We see clear potential for a doubling of EPS during 2021-2022 compared with 2020, noting that 2020 was affected to some extent by non-recurring financial expenses.

BUY with a target price of EUR 4.5 (1.9)
Solteq’s share price has over doubled since our previous update. Compared with the Nordic software peers, valuation is still not very challenging. With Solteq Software on our revised estimates contributing more clearly to growth and earnings along with overall higher earnings estimates higher multiples are certainly justifiable. We raise our TP to EUR 4.5 (1.9), valuing Solteq at approx. 23x 2021 P/E, BUY-rating intact.

Solteq - Solid finish to 2020

25.02.2021 | Earnings Flash

Solteq’s Q4 was slightly above expectations, with revenue at EUR 16.4m (Evli EUR 16.1m) and comp. EBIT at EUR 2.0m (Evli EUR 1.7m). Solteq expects that Group revenue in 2021 will grow clearly and for the operating profit to improve. Dividend proposal EUR 0.15 (Evli EUR 0.06).

  • Net sales in Q4 were EUR 16.4m (EUR 157m in Q4/19), in line with our estimates (Evli EUR 16.1m). Growth in Q4 amounted to 4.5% y/y. Comparable growth amounted to 9.3%. Comparable growth was attributable to both segments. 20.6% of sales came from outside Finland.
  • The operating profit and comparable operating profit in Q4 amounted to EUR 1.8m and 2.0m (EUR 1.7m/1.7m in Q4/19), slightly above our estimates (Evli EUR 1.7/1.7m). Capitalized product development investments during 2020 amounted to EUR 3.0m. Investments in 2021 are expected to amount to EUR 2.5m.
  • Solteq Digital: Comparable revenue in Q4 amounted to EUR 10.6m (Q4/19: EUR 10.2m) vs. EUR Evli 10.9m. The comp. EBIT was EUR 0.9m (Q4/19: EUR 0.3m) vs. Evli EUR 1.0m.
  • Solteq Software: Revenue in Q4 amounted to EUR 5.8m (Q4/19: EUR 4.8m) vs. Evli EUR 5.2m. The comp. EBIT was EUR 1.1m (Q4/19: EUR 0.6m) vs. Evli EUR 0.7m.
  • Guidance for 2021: group revenue is expected to grow clearly and operating profit to improve.
  • Dividend proposal: EUR 0.15 (Evli EUR 0.06)

Solteq - Steady as she goes

30.10.2020 | Company update

Solteq reported clearly better profitability figures than we had expected, with comp. EBIT of EUR 1.4m (Evli 0.7m). We expect the good traction to show also in 2021 but remain slightly cautious on growth figures given the uncertainty. We adjust our TP to EUR 1.90 (1.65), BUY-rating intact.

Our profitability estimates clearly beat
Solteq reported Q3 results that were clearly better than we had expected. Revenue grew 8.5% in comparable terms to EUR 13.3m (Evli 13.0m) and the comparable operating profit to EUR 1.4m (Evli 0.7m). Profitability was better than expected in both segments. The pandemic has had some effect on sales but has not impacted the group’s performance as a whole so far. Solteq Software is clearly gaining traction with the order backlog that has been building up, with particular success in gaining new projects in the utilities-sector and positive development is seen during the rest of the year. Solteq Digital has seen continued good demand in core areas the outlook remains rather stable.

Solteq Software gaining traction
The good development in profitability, brought by previously taken measures and sales growth, is showing a positive effect on the company’s cash generation despite the interest expense burden and product development investments. We do not expect Solteq to go completely unscathed through the pandemic and have clearly lower growth expectations for Solteq Digital in 2021 while the good order intake and the build-up of recurring revenue from long-term contracts will support growth in Solteq Software. We also maintain margin estimates for 2021 at similar levels as in 2020 for now given the uncertainty but see potential for improvement in Solteq Software as the share of own products increases. On group level we estimate growth of 3.7% and an EBIT-margin of 8.8% in 2021.

BUY with a target price of EUR 1.90 (1.65)
Current valuation implies a 2020e EV/EBITDA of 6.4x. Even when comparing solely with the Nordic IT-service peers, valuation still appears attractive. We retain our BUY-rating and raise our target price to EUR 1.90 (1.65) following our revised estimates.

Solteq - Clear earnings beat

29.10.2020 | Earnings Flash

Solteq’s revenue in Q3 grew 8.5% in comparable terms to EUR 13.3m (Evli EUR 13.0m). The comparable operating profit clearly beat our expectations at EUR 1.4m (Evli EUR 0.7m). Guidance reiterated: Solteq Group’s comparable operating profit in 2020 is expected to grow significantly.

  • Net sales in Q3 were EUR 13.3m (EUR 13.0m in Q3/19), slightly above our estimates (Evli EUR 13.0m). Growth in Q3 amounted to 2.3% y/y. Comparable growth, adjusted for the divestment of the SAP ERP business, amounted to 8.5%. Comparable growth was attributable to both segments. Approximately a fifth of sales came from outside Finland.
  • The operating profit and comparable operating profit in Q3 amounted to EUR 1.4m (EUR 0.3m/0.0m in Q3/19), clearly above our estimates (Evli EUR 0.7m). Capitalized product development investments during 1-9/2020 amounted to EUR 2.3m. Solteq expects product development investments in 2020 to amount to less than EUR 3.0m (2019: EUR 3.9m).
  • Solteq Digital: Comparable revenue in Q3 amounted to EUR 9.2m (Q3/19: EUR 9.3m) vs. Evli 9.2m. The comp. EBIT was EUR 0.8m (Q3/19: EUR 0.2m) vs. Evli EUR 0.5m.
  • Solteq Software: Revenue in Q3 amounted to EUR 4.1m (Q3/19: EUR 3.7m) vs. Evli EUR 3.8m. The comp. EBIT was EUR 0.5m (Q3/19: EUR 0.1m) vs. Evli EUR 0.2m.
  • Guidance reiterated: the comparable operating profit in 2020 is expected to grow significantly.
  • The pandemic has slightly affected sales in several business areas and the Nordic subsidiaries but the good order backlog, the capability to deliver, and success in the Utilies sector drove growth and has so far not affected the group’s performance as a whole.

Solteq - Actions taken yielding results

14.08.2020 | Company update

Solteq reported clearly better than expected profitability figures following cost reductions, with comp. EBIT at EUR 1.5m (Evli 0.5m). Possible demand thinness remains a concern but with the lower cost base we raise our 2021-22 comp. EBIT estimates by some 30% on average. We adjust our TP to EUR 1.65 (1.15) and our rating to BUY (HOLD).

Profitability clearly beat our estimates
Solteq reported solid Q2 results and profitability was clearly better than we had expected. Revenue grew 7.8% in comparable terms to EUR 15.1m (Evli EUR 14.6m) with both segments contributing nearly equally. The comp. EBIT amounted to EUR 1.5m, clearly above our estimates (Evli EUR 0.5m). The earnings improvement was attributable to previously taken streamlining actions and to some extent reduced travel expenses due to COVID-19. Solteq also reinstated a guidance for 2020, expecting comp. EBIT to grow significantly. The operating cash flow was also strong, at EUR 5.3m in H1 (2019: EUR 4.1m).

Coming year profitability estimates up by quite a bit
We have made larger estimates revisions post Q2, now expecting 2020 revenue of EUR 60.2m (prev 58.9m) and comp. EBIT of EUR 4.8m (prev. 2.4m). We have also raised our 2021-2022 comp. EBIT estimates by some 30% on average. The impact of the coronavirus has so far been limited and sales growth has been good during H1 following good earlier order intake. Our main concerns going forward relate to possible thinness in demand and as such expect lower relative growth figures. Solteq has seen good demand in for instance the energy sector, while areas more affected by the pandemic, such as the travel, restaurant and maritime sectors, saw lower sales in Q2.

BUY (HOLD) with a TP of EUR 1.65 (1.15)
Solteq has been burdened by high leverage and as such low earnings, which to a large extent will be reversed by the improved profitability and improved cash flows will reduce financial risk. With our revised estimates we adjust our TP to EUR 1.65 (1.15), implying a 2020e P/E of 16.5x. We adjust our rating to BUY (HOLD).

Solteq - Our estimates clearly beat

13.08.2020 | Earnings Flash

Solteq’s revenue in Q2 grew 7.8% in comparable terms to EUR 15.1m (Evli EUR 14.6m). The comparable operating profit clearly beat our expectations at EUR 1.5m (Evli EUR 0.5m) aided by cost savings from actions taken to improve operational efficiency. Guidance reinstated: Solteq Group’s comparable operating profit in 2020 is expected to grow significantly.

  • Net sales in Q2 were EUR 15.1m (EUR 14.7m in Q2/19), slightly above our estimates (Evli EUR 14.6m). Growth in Q2 amounted to 2.9% y/y. Comparable growth, adjusted for the divestment of the SAP ERP business, amounted to 7.8%. Growth was attributable to both segments. Approximately a fifth of sales came from outside Finland.
  • The operating profit and adjusted operating profit in Q2 amounted to EUR 1.5m (EUR 0.6m in Q2/19), clearly above our estimates (Evli EUR 0.5m). Profitability was aided by cost savings resulting from streamlining measures taken earlier this year.
  • Capitalized product development investments during H1/20 amounted to EUR 1.8m. Solteq expects product development investments in 2020 to amount to less than EUR 3.0m (2019: EUR 3.9m).
  • Solteq Digital: Comparable revenue in Q2 amounted to EUR 10.5m (Q2/19: EUR 10.4m) vs. Evli 10.3m. The comparable EBIT amounted to EUR 1.1m (Q2/19: EUR 0.5m) vs. Evli EUR 0.4m.
  • Solteq Software: Comparable revenue in Q2 amounted to EUR 4.6m (Q2/19: EUR 4.3m) vs. Evli EUR 4.3m. The comparable EBIT amounted to EUR 0.4m (Q2/19: EUR 0.0m) vs. Evli EUR 0.1m.
  • Solteq reinstated a guidance for 2020, expecting the comparable operating profit to grow significantly.

Solteq - Good start given prevailing uncertainty

04.05.2020 | Company update

Solteq’s Q1 growth was clearly better than expected, 11.6% in comparable terms, with sales at EUR 15.7m (Evli 14.4m). The adj. EBIT was in line with our expectation at EUR 0.9m (Evli 0.8m). We expect reasonable growth in comparable terms in 2020 despite some COVID-19 headwind. We retain our HOLD-rating with a TP of EUR 1.15 (0.95).

Growth in Q1 a positive surprise
Solteq’s revenue growth in Q1 was a clear positive, with revenue growing 5.0% (comparable growth 11.6%) to EUR 15.7m (Evli EUR 14.4m). Growth was driven by the Solteq Digital as a result of good order intake. The adj. EBIT was in line with our estimates at EUR 0.9m (Evli EUR 0.8m), with a lower relative profitability y/y (Q1/19: comp. EBIT 1.2m) due to higher product development depreciation, long-term project revenue recognition and COVID-19 provisions.

Expect growth in comparable revenue despite COVID-19
Based on the positive Q1 revenue figures we have revised our 2020E estimates, expecting revenue to amount to EUR 58.9m and increase some 6.5% from 2019 comparable revenue figures. We assume a dip in sales growth during mid-2020 due to the COVID-10 pandemic but for growth to pick up in 2021. We expect the adj. EBIT in 2020E (Evli EUR 2.4m) to be slightly below 2019 comparable figures largely due to an increase in depreciation related to capitalized product investments. Solteq does not provide a guidance for 2020 due to the pandemic. During 2021-2022 we expect stronger relative growth pick up in Solteq Software with the ramp-up of new projects and a perceived lesser impact of the pandemic along with a notable improvement in relative profitability.

HOLD with a target price of EUR 1.15 (0.95)
On our revised estimates we retain our HOLD-rating with a target price of EUR 1.15 (0.95). Should growth continue at a similar pace as in Q1 valuation upside potential would be clearer, but visibility is currently limited due to the COVID-19 pandemic and earnings multiples on our estimates rather unattractive.

Solteq - Solid revenue growth

30.04.2020 | Earnings Flash

Solteq’s revenue in Q1 was better than expected at EUR 15.7m (Evli EUR 14.4m). Comparable growth was 11.6%. The adj. operating profit was in line with expectations at EUR 0.9m (Evli EUR 0.8m). Product development investments in 2020E EUR 3.0m (2019 3.9m).

  • Net sales in Q1 were EUR 15.7m (EUR 14.9m in Q1/19), above our estimates (Evli EUR 14.4m). Growth in Q4 amounted to 5.0 % y/y. Comparable growth, adjusted for the divestment of the SAP ERP business amounted to 11.6%. Growth was mainly driven by the Solteq Digital segment. Approximately a quarter of sales came from outside Finland.
  • The operating profit in Q1 amounted to EUR 0.7m (EUR 1.5m in Q1/19), in line with our estimates (Evli EUR 0.8m). The adj. operating profit amounted to EUR 0.9m (EUR 1.2m in Q1/19), in line with our estimate of EUR 0.8m.
  • Capitalized product development investments during Q1/20 amounted to EUR 1.0m. Solteq expects product development investments in 2020 to amount to EUR 3.0m (2019: EUR 3.9m).
  • Solteq Digital: Revenue in Q1 amounted to EUR 11.3m (Q1/19: EUR 10.7m). Comparable growth 15.5%. The adj. EBIT amounted to EUR 0.7m (Q1/19: EUR 0.6m).
  • Solteq Software: Revenue in Q1 amounted to EUR 4.3m (Q1/19: EUR 4.2m). Growth was 2.5%. The adj. EBIT amounted to EUR 0.2m (Q1/19: EUR 0.7m).
  • Solteq announced a change to its dividend proposal due to uncertainty caused by the coronavirus pandemic and the BoD is to propose that no dividend be distributed.

Solteq - Software house journey setback

07.04.2020 | Company update

Solteq withdrew its guidance for 2020 due to the prevailing uncertainty caused by the Coronavirus pandemic. Customer deliveries within core business areas have so far remained unaffected but we expect to see some weakness within smaller project deliveries. Ramping up sales of newly developed own products will likely also prove to be more challenging. We expect a 6.5% decline in revenue in 2020. We retain our HOLD-rating with a TP of EUR 0.95 (1.40).

Guidance withdrawn due to Coronavirus uncertainty
Solteq withdrew its guidance for 2020 for the time being due to the prevailing uncertainty caused by the Coronavirus pandemic. Customer deliveries with core business areas, with typically larger contracts and longer customer relationships, have so far continued without interruption. We expect the implications of the Coronavirus pandemic going forward to act as a driver for digitalization, partly due to movement restrictions and increasing online demand. In the near term we nonetheless expect revenue to be affected, mainly from smaller project deliveries. We also expect a more challenging ramp up of some of newer software products, some of which had already shown a promising start.

Expect a 6.5% sales decline in 2020
We have lowered our 2020 sales growth estimate to -6.5% (-1.4%) and EBIT to EUR 2.1m (3.5m). We currently expect to see clear margin and sales growth picking up in 2021 but note the high estimates uncertainty due to the Coronavirus outbreak. An additional uncertainty element is caused by the high leverage and interest expenses. Solteq informed of intentions to consider initiating a written procedure to extend its outstanding EUR 24.5m notes by 12 months, that were to mature July 1st, 2020.

HOLD with a TP of EUR 0.95 (1.40)
Solteq’s cash flows were set to improve in the near-term due to lower investments and improved operational profitability. Although Solteq should be able to show relative resilience, the increased uncertainty amid the company’s ambitions to change track towards a software focus is clearly suboptimal and we adjust our TP to EUR 0.95 (1.40), retaining our HOLD-rating.

Solteq - Slowly but steadily

28.02.2020 | Company update

Solteq’s Q4 results fell shy of our expectations. Revenue amounted to EUR 15.7m (Evli EUR 15.7m) while the adj. EBIT amounted to EUR 1.1m (Evli EUR 1.5m), affected by some project challenges. We expect revenue to decline slightly in 2020 due to the SAP ERP business divestment, while expecting the adj. EBIT to remain at 2019 levels. Following estimates revisions, we adjust our target price to EUR 1.40 (1.50) and retain our HOLD-rating.

Project challenges affected H2 profitability

Solteq’s revenue in Q4 amounted to EUR 15.7m (Evli 15.7m), growing 5.2% y/y. The adj. EBIT amounted to EUR 1.1m (Evli 1.5m) and EBIT to 3.3m (Evli 3.8m) due to the profit from the sale of Solteq’s SAP ERP business. Solteq seeks to distribute a dividend of EUR 0.05 per share, to be decided upon later. Project challenges in Finland during H2 affected revenue and as a result profitability. Comments on the positive development of own software products (i.e. Utilities, POS) and international growth were welcome, although near-term visibility is still limited. Product development expenses amounted to EUR 3.9m in 2019 and are expected to decrease clearly in 2020.

Slight sales decline expected in 2020

We expect revenue to decrease by 1.4% in 2020 following the impact of the sale of the SAP ERP business. The adj. EBIT is expected to remain at 2020 levels and with a pick-up in depreciation of capitalized development costs we expect operational performance to improve in 2020. Our EBITDA and adj. EBIT estimates for 2020-2021E are down by some 6-10% and ~20% respectively post-Q4 following an updated view on profitability improvement progress.

HOLD with a target price of EUR 1.40 (1.50)

Solteq saw good earnings growth in 2019 but with the capitalization of development costs cash flows remained weak. We expect improvements in 2020 but at a slower pace than previously anticipated. On our lowered estimates we adjust our target price to EUR 1.40 (1.50) and retain our HOLD-rating.

Solteq - EBIT misses our estimates

27.02.2020 | Earnings Flash

Solteq's Q4 results were slightly below our estimates. Net sales in Q4 amounted to EUR 15.7m (Evli EUR 15.7m), while the adj. EBIT amounted to EUR 1.1m (Evli EUR 1.5m). Solteq expects that its adjusted EBIT will remain at the same level as in 2019.

  • Net sales in Q4 were EUR 15.7m (EUR 14.9m in Q4/18), in line with our estimates (Evli EUR 15.7m). Growth in Q4 amounted to 5.2 % y/y. Revenue in Finland did not grow in 2019 compared to 2018, foreign subsidiary organic growth 26%.
  • The operating profit in Q4 amounted to EUR 3.3m (EUR 0.6m in Q4/18), below our estimates (Evli EUR 3.8m). The divestment of the SAP ERP business had a positive impact of EUR 2.5m. The adj. operating profit amounted to EUR 1.1m (EUR 0.6m in Q4/18), below our estimate of EUR 1.5m.
  • Product development investments during Q4/19 amounted to EUR 0.9m (2019: EUR 3.9m).
  • Guidance for 2020: Solteq expects that its adjusted operating profit will remain at the same level as in 2019. In our estimates we have expected growth in the adj. operating profit in 2020.
  • Dividend proposal: a dividend of a maximum amount of EUR 0.05 per share may be distributed, conditional upon whether the requirements for distribution of dividends are fulfilled in term of the company’s solvency and / or financial position. A separate announcement will be made if a resolution to distribute dividend is made. (Evli est. 0.03 per share)

Solteq - Finishing off a year of good progress

25.02.2020 | Preview

Solteq will report Q4 results on February 27th. Solteq will report exceptionally good results, aided by gains from the sale of its SAP ERP business to Enfo. We expect the operating profitability to have improved slightly from previous year levels. The divestment should further improve debt ratios sufficiently for Solteq to reinitiate dividend distribution and we expect a dividend proposal of EUR 0.03 per share. We retain our HOLD-rating and target price of EUR 1.50 intact ahead of the Q4 results.

Expect healthy profitability in Q4

We expect Solteq’s Q4 revenue to amount to EUR 15.7m and the adj. EBIT to EUR 1.5m. Solteq sold its SAP ERP business to Enfo Oyj during the quarter and is expected to book an approx. EUR 2.3m profit in Q4, which will clearly boost earnings. The sales of the SAP ERP business in 2019 is expected to be EUR 4m. With the sale of the business Solteq will focus more on the development of its own software products and services. We expect the sale to sufficiently improve debt ratios for Solteq to reinitiate dividend distribution, which have been on hold for two years due to bond covenants and expect a dividend proposal of EUR 0.03 per share.

SAP ERP business sale to affect growth

With the divestment of the SAP ERP business we have lowered our coming year estimates to account for the decrease in sales. With Solteq on a transformation journey towards becoming more focused on its own software products and related services we have not anticipated major growth in the near-term and with the divestment now expect a minor sales decline in 2020. We continue to expect for Solteq to remain on a margin improvement trajectory. 2020 guidance should in our view likely reflect growth in adj. operating profit compared to 2019.

HOLD with a target price of EUR 1.5

Apart from adjustments made based on the divestment of the ERP SAP business, our estimates remain unchanged. We retain our HOLD-rating and TP of EUR 1.5.

Solteq - Minor bumps, narrative unchanged

30.10.2019 | Company update

Solteq’s Q3 results fell short of our expectations due to the postponement of certain customer projects. Net sales were EUR 13.0m (Evli 13.5m) and EBIT EUR 0.3m (Evli 0.7m), with Q3 providing no other surprises. Solteq announced plans to implement a new structure during 2020, with two business segments, and their long-term financial targets. We retain our HOLD-rating with a TP of EUR 1.50.

Estimates miss from project postponements

Solteq’s Q3 results fell short of our as well as company expectations. Revenue in Q3 grew 1.2% to EUR 13.0m (Evli 13.5m) and EBIT amounted to EUR 0.3m (Evli 0.7m). The third quarter was impacted by the postponement of certain customer projects to the fourth quarter, with the value of a single postponed order at more than EUR 0.3m. Aside from the impact of the postponed projects the Q3 results provided no surprises. Solteq noted a continued positive development of its order backlog.

Plans to change segment structure during 2020

Solteq announced intentions to change its segment structure during 2020 into two business segments: Solteq Software and Solteq Digital. Solteq Software will focus on the company’s own products and Solteq Digital on IT expert services. The long-term financial targets for Software/Digital are: minimum average annual revenue growth 20%/5% and minimum EBIT-margin 25%/8%. For some perspective, this could imply Group EBIT-margins well over 10% by 2022.

HOLD with a target price of EUR 1.50

We have lowered our 2019 net sales and EBIT estimates to EUR 58.3m (prev. 58.9m) and EUR 3.9m (prev. 4.4m), with only minor adjustments to our coming year estimates. Solteq as an investment case relies on the transition towards own software and related services and some positive signs were seen from order inflow during Q3, although not large enough to warrant changes to our views. With our estimates largely intact we retain our HOLD-rating and target price of EUR 1.50.

Solteq - EBIT miss from project postponements

29.10.2019 | Earnings Flash

Solteq's Q3 results were slightly below our estimates. Net sales in Q3 amounted to EUR 13.0m (Evli EUR 13.5m), while EBIT amounted to EUR 0.3m (Evli EUR 0.7m). The operating profit was affected by the postponement of certain customer projects. Solteq reiterated its guidance, expecting the operating profit to grow clearly compared to the financial year 2018.

  • Net sales in Q3 were EUR 13.0m (EUR 12.8m in Q3/18), slightly below our estimates (Evli EUR 13.5m). Growth in Q3 amounted to 1.2 % y/y. The revenue of overseas subsidiaries increased considerably.
  • Operating profit and adjusted operating profit in Q3 amounted to EUR 0.3m (EUR 0.5m in Q3/18), below our estimates (Evli EUR 0.7m), at a margin of 2.2 %. The operating profit was below company expectations due to the postponement of certain customer projects to the fourth quarter.
  • Product development investments during Q3/19 amounted to EUR 0.9m (1-9/2019: EUR 3.0m), co’s FY2019 estimate EUR 3.7m.
  • The group’s order intake continued to develop positively during Q3/19 and improved considerably compared to Q3/18.
  • Guidance reiterated: Solteq's operating profit is expected to grow clearly compared to the financial year 2018
  • Solteq further announced a change in reporting structure and will during 2020 implement and structure with two segments: Solteq Software and Solteq Digital. The average annual sales growth targets for the segments are 20% and 5% respectively and EBIT-margin targets 25% and 8% respectively.

Solteq - Showing promising progress

14.08.2019 | Company update

Solteq’s Q2 results were slightly better than our expectations, with net sales at EUR 14.7m (Evli 14.4m) and EBIT at EUR 0.6m (Evli 0.5m). The report mostly implied business as usual, with encouraging comments on order intake development. We have made minor estimates revisions, now expecting a 2019 EBIT-margin of 7.4% (prev. 6.8%). We raise our target price to EUR 1.5 (1.4) and retain our HOLD-rating.

Q2 slightly better than expected

Solteq posted Q2 results slightly better than our expectations. Net sales amounted to EUR 14.7m vs. our estimate of EUR 14.4m. Growth picked up slightly in Q2, at 3.0% y/y, with the revenue of the international subsidiaries having grown significantly. The order intake has according to the company continued to develop positively and was larger than in the comparison period. Q2 EBIT amounted to EUR 0.6 vs. our estimate of EUR 0.5m. Product development investments grew to EUR 1.1m (0.6m), with the co’s full year estimate still at EUR 3.5m.

Slight upwards revisions of our estimates

We have made only minor adjustments to our estimates post-Q2. We expect sales in 2019 to grow 3.5% to EUR 58.9m, supported by a favourable order intake development and expect continued solid growth internationally. We expect the operating profit margin in 2019 to improve to 7.4% (prev. est. 6.8%) from 4.3% in 2018, driven by the actions taken to improve operational efficiency during 2018. Solteq has guided for its operating profit in 2019 to grow clearly compared to 2018.

HOLD with a target price of EUR 1.5 (1.4)

On 2019 peer multiples valuation still appears reasonably fair. Although we are not yet prepared to fully emphasize 2020 multiples, with the good progress so far during the year and our slightly raised estimates we raise our target price to EUR 1.5 (1.4) and retain our HOLD-rating.

Solteq - Results quite as expected

13.08.2019 | Earnings Flash

Solteq's Q2 results were slightly above our estimates. Net sales in Q2 amounted to EUR 14.7m (Evli EUR 14.4m), while EBIT amounted to EUR 0.6m (Evli EUR 0.5m). Solteq reiterated its guidance, expecting the operating profit to grow clearly compared to the financial year 2018.

  • Net sales in Q2 were EUR 14.7m (EUR 14.2m in Q2/18), slightly above our estimates (Evli EUR 14.4m). Growth in Q2 amounted to 3.0 % y/y. Revenue growth of international subsidiaries was significant.
  • Operating profit in Q2 amounted to EUR 0.6m (EUR 0m in Q2/18), above our estimates (Evli EUR 0.5m), at a margin of 3.9 %. The adjusted operating profit amounted to EUR 0.6m (Evli 0.5m), at a margin of 4.3%.
  • Product development investments during Q2/19 increased to EUR 1.1m (0.6m), co’s FY2019 estimate EUR 3.5m.
  • The group’s order intake developed positively during Q2/19 and was clearly better than in Q2/18.
  • Guidance reiterated: Solteq's operating profit is expected to grow clearly compared to the financial year 2018

Solteq - Initiating coverage with HOLD

27.06.2019 | Company report

Solteq has during the past years sought to shift its focus towards own cloud-based software products and services from a more IT-services oriented past. The strategic approach coupled with an increased focus on expansion internationally and new product development investments offer growth opportunities and margin improvement potential but the early stages of Solteq’s transition warrants caution. We initiate coverage of Solteq with a HOLD-rating and a target price of EUR 1.40.

Shifting focus towards own products and related services

Solteq is striving to transition from its more IT-services oriented past towards a company focused on own software products and related services, with strengths within commerce related solutions. Growth is sought from expansion internationally and product development investments such as autonomous service robotics solutions, while actions taken to enhance operational efficiency have and continue to aid margins.

Expect margin improvement and moderate growth

We expect a sales CAGR of near 3.5% between 2018-2021E, not including likely acquisitions, which have been elemental in achieving an average growth rate of over 10% p.a. since 2010. Operating profit margin development has been aided by actions to enhance operational efficiency and we expect further improvement to 6.8% in 2019E (2018: 4.3%).

Initiating coverage with HOLD and TP of EUR 1.40

We initiate coverage of Solteq with a HOLD-rating and a target price of EUR 1.40. Our valuation relies mainly on public Nordic IT-services oriented peer multiples. Based on our estimates and current valuation the 2019E and 2020E EV/EBIT and P/E multiples do not imply any notable upside, with the multiples generally in line with peers. Main drivers for valuation upside would in our view be faster revenue growth and margin improvement through a more rapid shift in the product mix and growth internationally. Investments into autonomous service robotics solutions are also a yet unproven but potentially very lucrative bet.

Solteq - Company presentation

20.08.2019
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This report is based on sources ERP considers to be correct and reliable. The sources include information providers Reuters and Bloomberg, stock-exchange releases from the companies and other company news, Statistics Finland and articles in newspapers and magazines. However, ERP does not guarantee the materialization, correctness, accuracy or completeness of the information, opinions, estimates or forecasts expressed or implied in the report. In addition, circumstantial changes may have an influence on opinions and estimates presented in this report. The opinions and estimates presented are valid at the moment of their publication and they can be changed without a separate announcement. Neither ERP nor any company within the Evli Group are responsible for amending, correcting or updating any information, opinions or estimates contained in this report. Neither ERP nor any company within the Evli Group will compensate any direct or consequential loss caused by or derived from the use of the information represented in this publication.

All information published in this report is for the original recipient’s private and internal use only. ERP reserves all rights to the report. No part of this publication may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in any retrieval system of any nature, without the written permission of ERP.

This report or its copy may not be published or distributed in Australia, Canada, Hong Kong, Japan, New Zealand, Singapore or South Africa. The publication or distribution of this report in certain other jurisdictions may also be restricted by law. Persons into whose possession this report comes are required to inform themselves about and to observe any such restrictions.

Evli Plc is not registered as a broker-dealer with the U. S. Securities and Exchange Commission (“SEC”), and it and its analysts are not subject to SEC rules on securities analysts’ certification as to the currency of their views reflected in the research report. Evli is not a member of the Financial Industry Regulatory Authority (“FINRA”). It and its securities analysts are not subject to FINRA’s rules on Communications with the Public and Research Analysts and Research Reports and the attendant requirements for fairness, balance and disclosure of potential conflicts of interest. This research report is only being offered in U.S. by Auerbach Grayson & Company, LLC (Auerbach Grayson) to Major U.S. Institutional Investors and is not available to, and should not be used by, any U.S. person or entity that is not a Major U.S. Institutional Investor. Auerbach Grayson is a broker-dealer registered with the U.S. Securities and Exchange Commission and is a member of the FINRA. U.S. entities seeking more information about any of the issuers or securities discussed in this report should contact Auerbach Grayson. The securities of non-U.S. issuers may not be registered with or subject to SEC reporting and other requirements.

ERP is not a supervised entity but its parent company Evli Plc is supervised by the Finnish Financial Supervision Authority.

Company Facts

Guidance

Group comparable revenue in 2024 is expected to grow and the operating result to be positive 

Financial targets

Revenue growth over 20% p.a., operating profit margin of 8%, and net debt/EBITDA ratio below 3.5

Share price (EUR)


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