Solteq - Slowly but steadily
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.