Solteq - Focusing on growth

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.