Solteq - Good performance across the board

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.