Solteq - Continued solid performance seen

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.

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