Solteq - Software house journey setback

Solteq withdrew its guidance for 2020 due to the prevailing uncertainty caused by the Coronavirus pandemic. Customer deliveries within core business areas have so far remained unaffected but we expect to see some weakness within smaller project deliveries. Ramping up sales of newly developed own products will likely also prove to be more challenging. We expect a 6.5% decline in revenue in 2020. We retain our HOLD-rating with a TP of EUR 0.95 (1.40).

Guidance withdrawn due to Coronavirus uncertainty
Solteq withdrew its guidance for 2020 for the time being due to the prevailing uncertainty caused by the Coronavirus pandemic. Customer deliveries with core business areas, with typically larger contracts and longer customer relationships, have so far continued without interruption. We expect the implications of the Coronavirus pandemic going forward to act as a driver for digitalization, partly due to movement restrictions and increasing online demand. In the near term we nonetheless expect revenue to be affected, mainly from smaller project deliveries. We also expect a more challenging ramp up of some of newer software products, some of which had already shown a promising start.

Expect a 6.5% sales decline in 2020
We have lowered our 2020 sales growth estimate to -6.5% (-1.4%) and EBIT to EUR 2.1m (3.5m). We currently expect to see clear margin and sales growth picking up in 2021 but note the high estimates uncertainty due to the Coronavirus outbreak. An additional uncertainty element is caused by the high leverage and interest expenses. Solteq informed of intentions to consider initiating a written procedure to extend its outstanding EUR 24.5m notes by 12 months, that were to mature July 1st, 2020.

HOLD with a TP of EUR 0.95 (1.40)
Solteq’s cash flows were set to improve in the near-term due to lower investments and improved operational profitability. Although Solteq should be able to show relative resilience, the increased uncertainty amid the company’s ambitions to change track towards a software focus is clearly suboptimal and we adjust our TP to EUR 0.95 (1.40), retaining our HOLD-rating.

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