Solteq - Difficulties persist amid tough market
Solteq’s Q3 results were disappointing. Despite the weak quarter, guidance was reiterated, indicating expectations of improvement in Q4, although profit warning risk is evident.
Utilities consulting once again the main disappointment
Solteq's Q3 results came in below our expectations, with both net sales and profitability falling short of our estimates. Net sales declined 5% in comparable terms to EUR 10.4m, with Utilities down 9% and Retail & Commerce down 4%. While sales were approximately 5% below our estimates, the performance was relatively resilient given the challenging market environment. Operating profit was EUR 0.1m (1% margin), marking the first quarter since 2023 without a profitability improvement. The performance was mixed, as R&C posted a solid EUR 0.6m operating profit (7% margin) despite declining sales, while Utilities recorded an operating loss of EUR -0.6m, or -17%, weighed down by continued weakness in consulting.
Clear improvement in Q4 needed to reach guidance
Solteq kept its guidance unchanged, with comparable net sales expected to decrease slightly (2024: EUR 48.8m) and the comparable operating result to increase significantly (2024: EUR 0.7m). Management's comments on the market outlook remained cautious, with no near-term improvements anticipated. We model Q4 net sales to continue declining slightly, although the drop should moderate due to a weaker comparison period. With declining sales, maintaining margins will be challenging, and achieving the FY earnings guidance will require a strong Q4. The comparable operating result for the first nine months was EUR 0.3m, implying a substantial improvement is needed in Q4. We expect R&C to maintain a stable earnings trend despite falling sales, with adj. EBIT projected at EUR 0.8m in Q4. In Utilities, efficiency measures are anticipated to bring earnings closer to breakeven at EUR -0.1m. Improvements in profitability and cash flow are crucial considering the company’s annual financing costs of approximately EUR 1.9m.
ACCUMULATE with a TP of EUR 0.52 (EUR 0.62)
Following estimate revisions, our FY forecasts are now net sales of EUR 46.4m and adjusted EBIT of EUR 1.0m. We have also lowered our estimates for 2026, as there are currently no signs of a near-term market recovery. Despite near-term headwinds, we continue to see long-term potential and valuation multiples begin to look attractive from 2026E onwards. We lower our TP to EUR 0.52 (prev. 0.62) and keep our ACCUMALATE rating.