Solteq - A two-sided year behind
Solteq reports Q4’24 results on Thursday, February 13th. We expect revenue to remain soft due to the challenging operating environment and recent divestment, while profitability improvements continue.
Wrapping up the year in line with full-year trends
Solteq successfully accelerated its profitability in Q3, while revenue continued its y/y decline. This trend is expected to persist in Q4, with costs restructured to a more sustainable level, supporting profitability, while the prolonged economic slowdown weighs on demand, as evidenced by the October profit warning. As a result, growth expectations have now shifted to 2025, with a substantial market recovery unlikely before H2. In November, Solteq announced the sale of its Danish healthcare software business for EUR 4m, aligning with its strategy to focus on core operations. The proceeds enabled the buyback and cancellation of EUR 2.26m of its outstanding notes, lowering its expensive interest costs. If conditions allow, further repurchases easing the debt burden are likely to follow.
Utilities performance key for further improvements
Looking ahead to 2025, Solteq’s larger Retail & Commerce segment has been stabilized through efforts to increase operational efficiency and should be able to deliver close to double-digit operating profit margins with its current composition, in line with its EBIT-margin target of 8%. However, further Group profitability leaps will require the Utilities segment’s continued development and strengthening. The segment has steadily increased its share of recurring revenue, with over 30% y/y increases in Q2 and Q3. With product quality issues largely resolved and the successful execution of the Helen FEENIX project boosting the segment’s market reputation, 2025 presents an opportunity to capitalize, even though the path to the targeted 18% EBIT-margin remains long. Given the progress in product quality, recurring revenue growth, and an improving market position, we believe the segment will continue to improve its performance, though much still depends on pick up in demand.
BUY with a target price of EUR 0.75
We have updated our estimates to reflect the recent divestment. The overall impact is small, and thus the effect on our estimates limited. The crucial profitability turnaround in 2024 has largely been successful, and we believe the turnaround is at a sustainable level, although growth prospects remain weaker. We keep our TP of EUR 0.75 and BUY rating