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SSH - Tall order for H2

SSH delivered a decent Q2 result that was in line with our expectations. The good Q2 result sets the company up for the seasonally stronger H2, but SSH will need to execute well in order to reach its 2019 guidance. We maintain our SELL recommendation and target price of 1.10 euros.

Q2 result in line with our expectations

SSH’s Q2 result was in line with our expectations. Q2 net sales were EUR 4.0 million (vs. 4.4m our expectation), and operating profit was EUR 0.4 million (vs. 0.4m our expectation). Software fees were EUR 1.7 million (1.9m Evli), Professional services were EUR 0.1 million (0.3m Evli), and Recurring revenue was EUR 2.2 million (2.2m Evli). There were no larger UKM perpetual deals during Q2, but SSH did sign several PrivX deals with larger corporations, e.g. Western Union. Revenue impact of PrivX is however still expected to be modest this year. Noteworthy also that during Q2 SSH entered into a global partnership with Tech Mahindra, a large global IT services company.

Estimates unchanged, focus on execution in H2

In order to reach its 2019 guidance (>10% growth in software business), SSH needs to execute well in H2. Sales need to grow about 30% in H2 from last year, which is a tall order and it will depend heavily on closing larger UKM deals. Based on yesterday’s result, we have not made any changes to our estimates. We expect 2019E net sales to decline -6% to 17.2 MEUR (reaching guidance though) and 2019E EBIT to be 0.6 MEUR thanks to efficient cost control. Our estimates for the coming years are also intact, with net sales growth expectations for 2020E and 2021E at 11% and 12% and gradually improving EBIT. Our sales estimates reflect the company’s current short and mid-term guidance.

No change in recommendation

On our estimates, SSH is trading at 2019-20 EV/Sales multiples of 3.3x and 2.9x. As noted previously in our reports, we’d like to see the results of SSH’s strategy materialising somewhat in the growth figures in order to justify higher valuation multiples. We maintain SELL recommendation with target price of 1.10 euros.

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