SSH - Strategy proceeding but painfully slow
Q1 miss puts pressure on closing licensing deals
Q1 net sales missed our estimates due to the lack of larger licensing deals in the period. Software fees were EUR 0.5 million (1.1m Evli), Professional services were EUR 0.1 million (0.3m Evli), and Recurring revenue was EUR 2.1 million (2.2m Evli). Although there is still plenty of time left to catch up for the miss, this puts pressure on closing several larger licensing deals in the coming quarters to reach the guided 10% growth for 2019E. According to management UKM pipeline looks good.
Strategy proceeding but painfully slow
No material new news was provided in conjunction with result regarding sales ramp up of PrivX and NQX. PrivX remains at the heart of SSH’s growth strategy, but revenue is not expected to be material yet. We have made small downward changes to our estimates after the Q1 result. We estimate SSH’s 2019E net sales to decline -7% to 17.1 MEUR (reaching guidance though) and 2019E EBIT to be 0.2 MEUR. Our estimates for the coming years are also broadly intact, with net sales growth expectations at 12% for 2020E and 2021E and EBIT improving towards 2021E.
Risk/reward still not attractive, SELL maintained
On our estimates, SSH is trading at 2019-20 EV/Sales multiples of 3.0x and 2.6x. Given the slow growth pace, lack of profitability and uncertainty to our sales estimates, we see valuation still challenging from a risk/reward perspective. We maintain SELL recommendation with revised target price of 1.10 euros (previously 1.60). Our target price is based on EV/Sales multiples of 2.5x and 2.2x on our 2019 and 2020 estimates.