Etteplan - Weaker market beginning to show

Etteplan reported Q2 results that were below our estimates. Etteplan’s sales and EBIT from business operations were at EUR 89.8m (Evli est. EUR 93.2m) and EUR 6.1m (Evli est. EUR 7.8m) respectively. The Software and Embedded Solutions segment underperformed due to market weakness, especially in early Q2.

Profitability suffered from a weak market

In Q2, Etteplan’s revenue growth slowed down to 0.7% as the company’s revenue came in at EUR 89.8m (EUR 89.3m in Q2/22, EUR 93.2m Evli est.). With the slow growth, the company’s EBIT decreased by 10.3% to EUR 6.1m (EUR 6.8m in Q2/22, EUR 7.8m Evli est.). As a result of the softer Q2, the company specified its financial guidance; revenue in 2023 to be EUR 360-380 (previously 360-390) million, and operating profit (EBIT) in 2023 to be EUR 28-31 (previously 28-33) million.

 

FY 2023 estimates revised downwards

The Q2 softness was led by the Software and Embedded Solutions service area, where activity notably slowed in April. Client R&D projects are being deferred due to a challenging macroeconomic environment with high interest rates and persistent inflation. Despite the slowdown, the company saw improving activity already at the end of the quarter as several major contracts were secured. We raised revenue growth forecasts for Engineering Solutions due to strong Q2 performance and the LAE Engineering acquisition in early Q3. Conversely, we revised Software and Embedded, and Technical Communication Solutions estimates downward due to lower expected volumes and softness seen during H1. We now estimate net sales of EUR 371.0m and EBIT of EUR 28.5m for FY 2023.

 

HOLD with a target price of EUR 15.0 (16.0)

Etteplan's weak H1 puts pressure to H2, our estimate for the FY EBIT lies in the lower end of the current guidance range. We revise our target price to EUR 15.0 (16.0), HOLD-rating intact due to the elevated 2023E multiples based on our updated estimates. When looking at 2024E multiples, our target P/E and EV/EBIT multiples are roughly in line with the company’s historic average levels. In addition, the current valuation is significantly below the value derived from our discounted cash flow valuation.

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