Innofactor - Eager to see what the future holds

Good results in the by COVID-19 impact weakened quarter
Innofactor reported slightly better Q3 results than we had expected in the due to the coronavirus pandemic more challenging quarter. Net sales grew 0.3% y/y to EUR 14.0m (Evli 13.8m), with the negative impacts of the pandemic lowering sales per employee by 1.6%. EBITDA amounted to EUR 1.6m (Evli EUR 1.3m), with slightly negative figures in the other Nordic countries due to lower sales. The negative impacts of the pandemic were in line with company expectations. Weaker demand has mainly been seen among commercial customers. The order backlog amounted to EUR 58.2m, up 9.4% y/y.

Awaiting signs of faster growth and earnings improvement
Innofactor expects net sales and EBITDA in 2020 to increase from 2019, with our estimates now at EUR 65.5m (2019: EUR 64.2m) and EUR 7.7m (2019: EUR 5.1m) respectively, with the latter estimate up slightly post Q3 following better than expected relative profitability. The outlook for 2021 remains positive but we still expect only a modest growth of 4.0% and minor EBITDA-% improvement (11.7% ->12.0%). Challenges continue to relate mainly to performance in the other Nordic countries and any notable signs of improvement are yet to be seen. M&A activity continues to appear likely in the coming years, with the company committed to its 20% annual growth and 20% EBITDA-% target, but it is too early to account for such.

BUY with a target price of EUR 1.45 (1.35)
On peer multiples Innofactor continues to trade at a clear discount. We also expect Innofactor to initiate dividend payments in 2020. Non-cash items (mainly PPA) affecting earnings will still keep dividend yields rather low (2020e: 2.3%). We raise our TP to EUR 1.45 (1.35) and retain our BUY-rating.