SSH - Initiate coverage with HOLD

We initiate coverage of SSH with a HOLD-recommendation and a target price of EUR 2.0. Our target price is based on our DCF value and 4.5x EV/Sales multiple on our 2019 revenue estimates. Current valuation is high, but we see compelling longer-term revenue and profitability potential which supports valuation.

Transformation in process

Under the management of the new CEO Ms. Kaisa Olkkonen, the company has taken a new strategic direction to reposition SSH into a more inclusive strategic PAM vendor for companies of all sizes operating in all IT-environments. With the launch of PrivX and further developing its PAM offering, the company intends to drive its growth by increasing its focus towards the subscription model, faster deployments and expanding into new customer segments.

Building up momentum in 2018

We expect only slight revenue growth for 2018, but see growth accelerating during towards the end of ’19-’21 period as sales of PAM offering picks up speed. We expect EBIT-margin to improve, but to remain negative during 2018-2020 due to further investments in growth. We have not included potential patent income and possible firewall related revenue in our estimates. If these projects were to materialize, they represent an upside risk to our estimates.

HOLD with a target price of EUR 2.0

On our estimates 2019E-2020E, SSH is trading at EV/Sales 4.3x and 3.7x, which is in line with the average 4.5x and 3.6x EV/Sales multiples for our small sample peer group. Current valuation is high, given that that the company is in the beginning of its transformation phase and risks are elevated, but we see compelling longer-term revenue and profitability potential which supports valuation.

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