Innofactor |

Nordic digital transformation and cloud solutions provider

| Finland

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Financial overview

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Innofactor - On track despite the pandemic

29.07.2020 | Company update

Innofactor posted solid Q2 profitability figures, with EBITDA at EUR 2.1m (Evli 1.1m) for a 12.3% EBITDA-margin. We assume a slightly weaker H2 due to the coronavirus pandemic, but progress made supports the long-term case. Our 2020-2022 EBITDA estimates are up some 20% post-Q2. We raise our TP to EUR 1.35 (0.95) with our BUY-rating intact.

Delivered a positive earnings surprise
Innofactor delivered a pleasant surprise in second quarter profitability figures, with EBITDA of EUR 2.1m clearly topping our estimates (Evli EUR 1.1m). Net sales grew 0.6% y/y to EUR 16.8m (Evli 16.6m). Net sales in the other Nordic countries developed somewhat unfavourably due to the coronavirus pandemic, resulting in negative EBITDA figures for their part, while Finland continued strong. The impact of the pandemic was still not as large as the company had anticipated. The order backlog continued y/y and q/q growth, up to EUR 56.9m (Q2/19: 44.2m).

Profitability development on a solid track
We have raised our 2020E EBITDA estimate to EUR 7.2m (prev. EUR 5.9m) and our 2021-2022E estimates by ~20%. We expect some margin decline in H2 compared to H1 due to the pandemic given slower sales development, although cost base reductions due to travel restrictions should ease some of the pressure. Our sales growth assumptions in 2021-2022 remain modest (avg. 3.5% p.a.) given the company target (~20% p.a.), with limited signs of more rapid pick-up in growth. Innofactor acquired the remaining ~55% of shares in Arc Technology and with the improved cash flows we expect likely further M&A activity to boost growth.

BUY with a target price of EUR 1.35 (0.95)
Innofactor’s share price has rallied some 40% since our previous update in May but on our revised estimates and peer multiples we still see upside in valuation. On our revised estimates we adjust our target price to EUR 1.35 (0.95), for an implied 2020 EV/EBITDA of 8.7x and retain our BUY-rating.

Innofactor - Continued good profitability

28.07.2020 | Earnings Flash

Innofactor’s Q2 results were above our expectations and profitability remained at a good level. The net sales in Q2 amounted to EUR 16.8m (Evli EUR 16.6m), while EBITDA amounted to EUR 2.1m (Evli EUR 1.1m). Guidance remains intact. The impact of the coronavirus pandemic was limited but EBITDA in Sweden, Norway and Denmark fell in the red due to lowered sales.

  • Net sales in Q2 amounted to EUR 16.8m (EUR 16.7m in Q2/19), in line with our estimates (Evli EUR 16.6m). Net sales in Q2 grew 0.6% y/y.
  • EBITDA in Q2 was EUR 2.1m (EUR 1.1m in Q2/19), clearly above our estimates (Evli EUR 1.1m), at a margin of 12.3%. EBITDA was clearly positive in Finland but somewhat negative in the other countries due to smaller than expected net sales due to the coronavirus pandemic.
  • Operating profit in Q2 amounted to EUR 0.9m (EUR 0.2m in Q2/19), clearly above our estimates (Evli EUR 0.0m), at a margin of 5.3%.
  • Order backlog at EUR 56.9m, up 28.8% y/y. Innofactor received several significant orders during the quarter and the order backlog improved q/q.
  • Guidance intact: Innofactor’s net sales and EBITDA in 2020 are estimated to increase compared to 2019.
  • The impact of the coronavirus pandemic on the second quarter was smaller than the company had previously expected. The pandemic lowered sales in Sweden, Norway and Denmark in the second quarter. Impact of the pandemic on Group net sales and profitability expected to be small during the rest of 2020. The company estimates a possibility that it will not achieve comparable net sales growth in Q3 as in Q1 and Q2.

Innofactor - Right on track

06.05.2020 | Company update

Innofactor posted solid profitability figures in Q1 along with continued revenue growth. A minor COVID-19 impact is expected for the rest of the year. We continue to expect minor sales growth along with EBITDA improvement in 2020. We retain our BUY-rating with a target price of EUR 0.95 (0.90).

Solid Q1 profitability and sales growth
Innofactor’s Q1 results beat our expectations and profitability reached solid levels. Revenue amounted to EUR 17.2m (Evli 16.8m) and grew 6.2% y/y. EBITDA amounted to EUR 2.0m (Evli 1.2m). All countries were profitable and showed sales growth in Q1. Non-cash internal debt exchange rate fluctuations kept PTP in the red but operating cash flow was a solid EUR 3.1m. The order backlog was at a good level of EUR 54.1m and the pipeline remains healthy according to the company. Guidance remains intact, with net sales and EBITDA expected to increase compared to 2020.

COVID-19 impact expected to be minor
Innofactor expects the impacts of the Coronavirus pandemic on the rest of the year to be minor. Our 2020 estimates remain largely intact as the solid Q1 offset adjustments due to the pandemic for the later quarters. We expect minor growth in 2020, with revenue of EUR 65.1m (2019: 64.2m), and an EBITDA of EUR 5.9m (2019: 5.1m). The high share of recurring revenue, some 55% in Q1, will prove to be beneficial under current circumstances. Additional funding of EUR 3.0m was secured for financial flexibility and possibly pursuing inorganic growth opportunities. The ownership in Arc Technology was increased and will be reported as a subsidiary from Q2, 2020 net sales impact is approximately EUR 1.0m.

BUY with a target price of EUR 0.95 (0.90)
Innofactor has been on a good track on EPS growth and improved operational efficiency and the impact of COVID-19 is estimated to be limited. Valuation has become fairer on peer multiples, but we see long-term potential intact. We retain our BUY-rating with a target price of EUR 0.95 (0.90).

Innofactor - Solid profitability figures

05.05.2020 | Earnings Flash

Innofactor’s Q1 results were above our expectations and profitability was at solid levels. The net sales in Q1 amounted to EUR 17.2m (Evli EUR 16.8m), while EBITDA amounted to EUR 2.0m (Evli EUR 1.2m). Guidance remains intact. COVID-19 impact so far limited, minor impact on net sales and profitability expected for the end of the year.

  • Net sales in Q1 were EUR 17.2m (EUR 16.1m in Q1/19), slightly above our estimates (Evli EUR 16.8m). Net sales in Q1 grew 6.2 % y/y. Net sales grew in all countries.
  • EBITDA in Q1 was EUR 2.0m (EUR 0.9m in Q1/19), clearly above our estimates (Evli EUR 1.2m), at a margin of 11.4 %.
  • Operating profit in Q1 amounted to EUR 0.8m (EUR -0.1m in Q1/19), clearly above our estimates (Evli EUR 0.1m), at a margin of 4.8 %.
  • Order backlog at EUR 54.1m, up 32% y/y. Innofactor received several significant orders during the quarter and the order backlog improved q/q.
  • Guidance intact: Innofactor’s net sales and EBITDA in 2020 are estimated to increase compared to 2019.
  • The Coronavirus pandemic has so far not had a significant effect on the ability to provide services. Innofactor estimates that the pandemic will have a minor effect on the net sales and profitability of the rest of the year. Third and fourth quarter growth and profitability will depend on the schedule of removal of restrictions in the Nordics.
  • EUR 3.0m additional funding received, organic growth opportunities possible

Innofactor - Sustaining successful turnaround

26.02.2020 | Company update

Innofactor’s Q4 results were slightly below our expectations, with net sales of EUR 17.4m (Evli 17.0m) and EBITDA of EUR 1.6m (Evli 2.0m). The business development remains favourable through a continued healthy order backlog and revenue mix. With significant improvements in cash generation and a reasonable financial situation M&A activity could again be on the table to supplement the service offering in the Nordics and speed up growth.

Continued healthier profitability

Innofactor’s Q4 results were slightly shy of our expectations. Net sales grew 9.7% from the relatively weak comparison period to EUR 17.4m (Evli 17.0m) while EBITDA amounted to EUR 1.6m (Evli EUR 2.0m). Innofactor expects net sales and EBITDA in 2020 to increase from 2019. The order backlog remained at a good level of EUR 49.8m. Q4 saw no new significant orders but several orders have already been received during early 2020. The net sales mix remains favourable through a continued higher level of recurring revenue.

M&A activity could pick up

We continue to expect limited near-term growth (2020E: 4%) with the longer duration of the order backlog while expecting some further pick-up in margins (2020E: +1.2%p EBITDA-%). Wage inflation through changes to the Competitiveness Pact may pose a risk while the margin improvement potential remains supported by the to our understanding current suboptimal billing rates. With the improved cash generation and not particularly challenging financial position M&A activity could likely pick up again to supplement the offering of Innofactor’s pan-Nordic platform and accelerate growth.

BUY with a target price of EUR 0.90 (0.85)

Innofactor is in our view continuing to show good progress in building up a healthier business. With valuation not overly stretched we retain our BUY-rating and raise our target price to EUR 0.90 (0.85).

Innofactor - Margins slightly below expectations

25.02.2020 | Earnings Flash

Innofactor’s Q4 results were slightly below our expectations. The net sales in Q4 amounted to EUR 17.4m (Evli EUR 17.0m), while EBITDA amounted to EUR 1.6m (Evli EUR 2.0m). Innofactor expects that its net sales and EBITDA in 2020 will increase from 2019. The BoD proposes that no dividend be paid for 2019 (Evli EUR 0.00).

  • Net sales in Q4 were EUR 17.4m (EUR 15.9m in Q4/18), in line with our estimates (Evli EUR 17.0m). Net sales in Q4 grew 9.7 % y/y. Net sales per employee has improved by 15.6% since the previous year.
  • EBITDA in Q4 was EUR 1.6m (EUR -0.9m in Q4/18), below our estimates (Evli EUR 2.0m), at a margin of 8.9 %.
  • Operating profit in Q4 amounted to EUR 0.5m (EUR - 1.7m in Q4/18), below our estimates (Evli EUR 1.0m), at a margin of 2.8 %. Profitability has been supported by the measures taken during the end of 2018 to improve profitability.
  • Order backlog at EUR 49.8m, up 62.4% y/y. No significant individual orders were signed during the quarter as several decisions were delayed until the turn of the year.
  • Guidance for 2020: Innofactor’s net sales and EBITDA in 2020 are estimated to increase compared to 2019.
  • Dividend proposal: The BoD proposes that no dividend be paid for 2019 (Evli EUR 0.00).

Innofactor - Return to slight sales growth

30.10.2019 | Company update

Innofactor’s Q3 saw a return to net sales growth and better than expected profitability. The continued solid order backlog development remains a clearly supportive factor. With order backlog conversion visibility being challenging due to longer duration of signed contracts, we continue to expect only minor growth in the near-term, however noting the advantages of the added sales stability. We retain our BUY-rating with a TP of EUR 0.85 (0.80).

Profitability above estimates, solid order backlog growth

Innofactor’s Q3 results were better than our expectations. Net sales were in line with our estimates at EUR 14.0m (Evli 14.1m), showing slight growth of 1.4%, for the first time since Q3/2017. EBITDA and EBIT beat our estimates at EUR 1.5m (Evli 0.7m) and EUR 0.3m (-0.2m) respectively. Q3 EBIT was slightly burdened by depreciation adjustments attributable to the period 1-9/2019. Profitability improved compared with the previous year due to the measures taken to improve profitability at the end of 2018 and the sales per employee improved 12% from the previous year. The order backlog further grew by 107% y/y to EUR 53.2m.

Continuing to show signs of improvement

Innofactor’s Q3 results in our view continued to show signs of good progress and also saw the recurring components of the net sales mix increase to just slightly over 50%. Interpreting the speed of translation of the order backlog to sales remains challenging due to the increased share of long-term projects, which on the other hand provides added stability in net sales going forward. We have made minor revisions to our estimates post-Q3, expecting revenue growth of 3% during 2020-2021. Our 2020-2021 EBITDA estimates are up by around 5%, expecting profitability to continue to improve.

BUY with a target price of EUR 0.85 (0.80)

Having made minor upwards revisions to our estimates we adjust our target price to EUR 0.85 (EUR 0.80). On our estimates valuation on purchase price excluded basis still remains fairly attractive and we retain our BUY-rating.

Innofactor - Profitability beats expectations

29.10.2019 | Earnings Flash

Innofactor’s Q3 results were better than we had expected. The net sales in Q3 amounted to EUR 14.0m (Evli EUR 14.1m), while EBITDA amounted to EUR 1.5m (Evli EUR 0.7m). Innofactor reiterated its 2019 guidance, with net sales expected to increase from 2018 and EBITDA to be in between EUR 4.0-6.0m.

  • Net sales in Q3 were EUR 14.0m (EUR 13.8m in Q3/18), in line with our estimates (Evli EUR 14.1m). Net sales in Q3 grew 1.4 % y/y. Sales per employee has improved by 12.0% since the previous year.
  • Operating profit in Q3 amounted to EUR 0.3m (EUR -1.2m in Q3/18), above our estimates (Evli EUR -0.2m), at a margin of 1.8 %. Profitability has been supported by the measures taken during the end of 2018 to improve profitability.
  • EBITDA in Q3 was EUR 1.5m (EUR -0.5m in Q3/18), above our estimates (Evli EUR 0.7m), at an EBITDA-margin of 11.0 %.
  • Order backlog at EUR 53.2m, up 107% y/y, aided by several significant orders signed.
  • Guidance reiterated: Innofactor’s net sales in 2019 is estimated to increase from 2018 and EBITDA is estimated to grow up to EUR 4.0–6.0 million

Innofactor - Starting to show earnings stability

24.07.2019 | Company update

Innofactor’s Q2 results did not present any surprises and both net sales (Act./Evli EUR 16.7m/16.8m) and EBITDA (Act./Evli EUR 1.1m/1.0m) were well in line with our estimates. With a sales decline during H1/19 Innofactor will need to deliver a pick up in sales during H2/19, which should be made possible by the solid order backlog and new recruitments and actions to turn the sales growth in Denmark and Sweden back on track. We retain our BUY-rating with a target price of EUR 0.80.

Q2 results well in line with our expectations

Innofactor’s Q2 results did not present any surprises and were well in line with our estimates. Revenue declined 2.1% y/y to EUR 16.7m (Evli EUR 16.8m) while EBITDA improved to EUR 1.1m (Evli EUR 1.0m). Profitability continues to be aided by the actions taken during H2/18, as the revenue per employee increased by some 8%. The improved profitability also saw the operating cash flow increasing to EUR 2.1m in H1/19 (H1/18: EUR 0.4m).

Sales growth uplift needed during H2/19

Our estimates remain unchanged post-Q2, expecting net sales of EUR 64.0m and an EBITDA of EUR 4.7m in 2019. Innofactor has estimated for its net sales in 2019 to increase from 2018 and EBITDA to amount to EUR 4.0-6.0m. We expect net sales in 2019 to increase on slightly, by 1.3% from 2018. With net sales in H1/19 2.0% below H1/18 a pick-up in sales growth is required during H2/19. According to management sales growth is supported by the order backlog and recent larger new recruitments. Denmark and Sweden are expected to show growth in sales by Q4.

BUY with a target price of EUR 0.80

On our estimates Innofactor trades at a discount to peers, namely on EV/EBITDA and purchase price amortization adjusted multiples. With our estimates and views on Innofactor unchanged post-Q2 we retain our BUY-rating and target price of EUR 0.80.

Innofactor - In line with expectations

23.07.2019 | Earnings Flash

Innofactor’s Q2 results were in line with our estimates. The net sales in Q2 amounted to EUR 16.7m (Evli EUR 16.8m), while EBITDA amounted to EUR 1.1m (Evli EUR 1.0m).

  • Net sales in Q2 were EUR 16.7m (EUR 17m in Q2/18), in line with our estimates (Evli EUR 16.8m). Net sales in Q2 declined -2.1 % y/y.
  • Operating profit in Q2 amounted to EUR 0.2m (EUR -0.6m in Q2/18), in line with our estimates (Evli EUR 0.1m), at a margin of 0.9 %.
  • EBITDA in Q2 was EUR 1.1m (EUR 0m in Q2/18), in line with our estimates (Evli EUR 1m), at an EBITDA-margin of 6.8 %.
  • Order backlog at EUR 44.2m, up 87% y/y, aided by several significant orders signed during the first half of 2019.
  • Guidance reiterated: Innofactor’s net sales in 2019 is estimated to increase from 2018 and EBITDA is estimated to grow up to EUR 4.0–6.0 million

Innofactor - Upgrade to BUY

05.06.2019 | Company update

Innofactor revised its guidance for EBITDA, expecting EBITDA in 2019 in between EUR 4-6m, compared to EUR -1.0m in 2018. The sales guidance remains intact, with sales expected to increase from 2018 (EUR 63.1m). Our revised EBITDA estimate for 2019 is EUR 4.6m (prev. EUR 4.0m). With the alleviated earnings uncertainty and our slightly revised estimates we raise our rating to BUY (HOLD) with a target price of EUR 0.80 (0.60).

2019 EBITDA guidance range EUR 4-6m

Innofactor revised its guidance for EBITDA while keeping the sales guidance intact. Under the new guidance Innofactor expects sales to increase from 2018 (EUR 63.1m) and EBITDA to be in between EUR 4-6m (prev. increase from 2018), compared to EUR -1.0m in 2018. To our understanding the revised guidance was not triggered by any extraordinary items but instead mainly due to increased visibility into the full year development.

Our 2019 EBITDA estimate at EUR 4.6m

Based on Q1 figures and historical development, with Q4 typically being strong, the mid-range of the guidance would certainly be achievable. The upper range of the guidance appears challenging but would, when considering the impact of IFRS 16 changes, imply similar EBITDA levels as Innofactor has achieved pre-2017. Innofactor’s Q1 showed promising development but with two weaker years behind we opt to stay more on the cautious side of the guidance range and adjust our 2019 EBITDA estimate to EUR 4.6m (prev. 4.0m).

BUY (HOLD) with a target price of EUR 0.80 (0.60)

On 2019E EV/EBITDA valuation is only slightly below peers. As the guidance range offers increased visibility into 2019 development we shift some more focus on 2020E multiples. On the 2020E multiples valuation looks more attractive, in particular when considering the PPA adjusted multiples. We upgrade to BUY (HOLD) with a target price of EUR 0.80 (0.60).

Innofactor - Still warrants caution

03.06.2019 | Company update

Innofactor’s Q4 earnings release did not in our view bring any major surprises and the results were only slightly below our estimates. Significant evidence of a turnaround remains to be seen, although the guidance and order backlog give some support for improving figures in 2019. We retain our HOLD-rating with a target price of EUR 0.45 (0.40).

Signs of improvements seen, evidence still lacking

Innofactor’s Q4 results were slightly below our estimates, with revenue and EBITDA at EUR 15.9m (Evli 16.4m) and EUR -0.9m (Evli -0.7m), and due to the profit warning issued in January did not bring any major surprises. In our view the results still did not show solid evidence of a major turnaround. The guidance given was at least at this point still vague, with net sales and EBITDA in 2019 expected to increase from 2018 levels, which given the 2018 results should clearly be viewed as a minimum requirement. A positive sign for 2019 was the order backlog, which was reported for the first time, standing at around EUR 32m, up some 40% y/y.

Estimates intact apart from IFRS 16 adjustments

Our estimates remain largely intact post Q4, apart from IFRS 16 revisions to EBITDA of approx. EUR 1m. We continue to expect Innofactor to reach a barely positive EBIT in 2019. We expect profitability improvements mainly from a higher billing rate, supported by the order backlog and a smaller headcount. Sale of Dynasty product family updates are expected to support early 2019 but we expect overall stronger profitability during H2. Although potential for larger profitability improvements exists we still remain cautious due to the weak track during previous years and operations in Denmark continue to cause headaches.

HOLD with a target price of EUR 0.45 (0.40)

With IFRS 16 adjustment causing possible comparability issues with EV/EBITDA multiples we adjust EV/EBIT multiples for purchase price amortizations to arrive at 2019E and 2020E multiples of 12.5x and 6.7x respectively, compared to peer median multiples of 10.9x and 10.0x. We retain our HOLD-rating with a target price of EUR 0.45 (0.40).

Innofactor - Profitability improving

20.05.2019 | Company update

Innofactor’s profitability improved in Q1, aided primarily by the cost savings program from Q4/18 and a higher revenue per employee. Prerequisites for further improvements remain, as the personnel base has decreased while the order backlog remains at healthy levels. We retain our HOLD-rating with a target price of EUR 0.60 (0.45).

Improved profitability in Q1

Innofactor’s profitability in Q1 improved in line with our expectations, with EBITDA amounting to EUR 0.9m, at a margin of 5.4%. Revenue fell slightly short of our expectations, affected partly by a smaller impact of the timing of Dynasty product sales than we had expected. Profitability was aided primarily by the restructuring efforts and cost savings done during Q4/18 but also by a higher revenue per employee (+9.2% y/y). The adoption of IFRS 16 had a EUR 0.3m positive impact on EBITDA.

Prerequisites for improving profitability in place

The level of impact on profitability of the cost savings efforts that were executed during Q4/18 was largely visible in Q1 figures. Focus will remain on improving profitability and further increases of the revenue per employee remains a key source for improvement in our view. The prerequisites certainly exist, as the number of personnel has decreased 10% y/y while the order backlog is up some 85% y/y. The positive development has still been largely attributable to operations in Finland, as challenges in both Denmark and Sweden have persisted and remain a key uncertainty. We have made only minor adjustments to our estimates post Q1, with our 2019 revenue and EBITDA estimates at EUR 64.0m and EUR 4.0m respectively.

HOLD with a target price of EUR 0.60 (0.45)

Innofactor trades at a 2019E EV/EBITDA of 9.5x, in line with peers. Given the challenges Innofactor has faced and an elevated level of uncertainty we would normally consider this quite a stretch. With signs of improving profitability and more attractive 2020E multiples we are however prepared to give Innofactor the benefit of the doubt and retain our HOLD-rating with a target price of EUR 0.60 (0.45).

Innofactor - Net sales slightly lower, operating margin in line

14.05.2019 | Earnings Flash

Innofactor reported Q1 net sales of EUR 16.1m and EBITDA of EUR 0.869m. Net sales missed our estimate of EUR 17.1m, but EBITDA was in line with our expectation of EUR 0.8m. Innofactor commented that measures for improving profitability, carried out near the end of 2018, have started to take an effect in the first quarter as planned. Innofactor expects net sales and operating margin (EBITDA) in 2019 to increase from 2018 (2018: net sales EUR 63.1m EBITDA EUR -1.0m)

  • Q1 net sales were approximately EUR 16.1 million (2018: 16.5) vs. EUR 17.1m our expectation
  • EBITDA was EUR 0.869 (+155% yoy), vs. EUR 0.8m our expectation.
  • The order backlog was EUR 41.0 million (2018: 22.2), which shows an increase of 85%.
  • Innofactor got several significant orders in the first quarter, for example, Traficom VISA, approximately EUR 0.5 million; a decision-making system for the City of Espoo, approximately EUR 1.5 million; and a membership management project for a Swedish organization, approximately EUR 1.3 million
  • Guidance maintained; Innofactor’s net sales and operating margin (EBITDA) in 2019 is estimated to increase from 2018, during which the net sales were EUR 63.1 million and operating margin was EUR -1.0 million

Innofactor - Slightly below estimates

05.03.2019 | Earnings Flash

Innofactor’s Q4 earnings were as expected negative and the results as a whole were slightly below our estimates. Innofactor’s net sales in Q4 amounted to EUR 15.9m (Evli 16.4m) and EBITDA was -0.9m (Evli -0.7m). Innofactor expects its net sales and EBITDA in 2019 to increase from 2018 levels (EUR 63.1m and EUR -1.0m respectively). Innofactor reported an order backlog of EUR 32m, up some 40% y/y.

  • Innofactor’s net sales in Q4 were EUR 15.9m, slightly below our estimates of EUR 16.4m. Sales growth in Q4 was -7.3 % y/y.
  • The EBITDA in Q4 amounted to EUR -0.9m, falling slightly below our estimates (Evli EUR -0.7m), at an EBITDA-margin of -5.7 %. The weaker profitability was according to Innofactor due to weaker Dynasty product sales, weaker than anticipated revenue in Denmark and some project write-downs.
  • Guidance: Innofactor’s net sales and EBITDA in 2019 are expected to increase from 2018 levels, when the net sales and EBITDA amounted to EUR 63.1m and EUR -1.0m respectively.
  • Dividend proposal: Innofactor’s BoD proposes that no dividend be paid for 2018 (Evli EUR 0.0).
  • Operating cash flow during 2018 was EUR -0.6m.
  • Active personnel at the end of the period 550 (2017: 601)
  • Order backlog at around EUR 32m, up around 40% y/y. Has not previously been reported.

Innofactor - Second profit warning for 2018

28.01.2019 | Company update

Innofactor issued a second profit warning, expecting net sales to decline from 2017 and EBITDA to be negative, from previously having expected net sales to be at a similar level to 2017 (EUR 65.7m) and EBITDA in between EUR 0.0-1.3m. Our revised 2018 net sales and EBITDA estimates are at EUR 63.7m and -0.9m respectively. We retain our HOLD-rating with a target price of EUR 0.4.

Lowered guidance for 2018

Innofactor issued its second profit warning for 2018 on January 25th. Innofactor now expects its net sales to decline from 2017 and EBITDA to be negative. Innofactor’s previously expected its net sales to be at a similar level to 2017 and the operating margin to be positive but weaker than in 2017. Innofactor’s net sales and EBITDA in 2017 amounted to EUR 65.7m and EUR 1.3m respectively. The weaker than expected sales is according to Innofactor due to the timing of customer’s purchases related to the Dynasty product family along with lower sales in Denmark. Profitability is affected by the lower sales along with some write offs related to project deliveries, of which to our understanding the lower sales have a bigger impact. Innofactor further held co-operation negotiations during Q4 that is expected to have affected profitability.

Expect improvements in 2019

Following the updated guidance, we have revised our 2018 estimates, with our net sales and EBITDA estimates at EUR 63.7m and EUR -0.9m respectively, with our other estimates largely intact. We expect to see a minor improvement in sales going into 2019 and a more notable profitability improvement, mainly from the organizational changes made in late 2018.

HOLD with a target price of EUR 0.4

On our estimates valuation continues to appear justifiable on EV/EBITDA multiples, as the improvement we expect to see in profitability in 2019 is still well below historically seen levels. We retain our HOLD-rating with a target price of EUR 0.4.

Innofactor - Waiting for signs of a turnaround

11.12.2018 | Company report

Innofactor has in the near past seen sales growth declines and profitability being burdened by internal problems. Actions to decrease organizational levels and improve decision-making are being taken and we expect profitability to see some recovery in 2019, while signs of accelerated sales growth remain to be seen. We retain our HOLD rating with a target price of EUR 0.40 (0.55).

Sales growth uncertainty

Innofactor has seen sales declining in the near past due to weaker sales activity, with the organizational structure having had an effect. Actions have been taken to decrease the organizational levels and improve decision-making, but we remain wary to sales growth being remedied in 2019 and expect flat sales growth.

Market outlook remains supportive

The Nordic IT-services market has seen healthy growth in recent years and is expected to continue in the coming years. Furthermore, Microsoft has shown solid performance within enterprise solutions, expected to grow at a double-digit pace.

Expect to see margin improvement

The weaker sales in the near past along with other factors have had a negative effect on profitability. Organizational actions being taken are expected to have both a direct and indirect positive effect on profitability from 2019 onward and we expect to see margin improvement in the coming years.

HOLD with a target price of EUR 0.40 (0.55)

On our estimates valuation is quite in line with peers on 2019E EV/EBITDA while on 2020E multiples valuation appears more attractive. As profitability has been an issue in the near past and evidence of significant margin improvements are still lacking we emphasize the 2019E peer EV/EBITDA multiple and value Innofactor at 8.6x 2019E EV/EBITDA, giving a target price of EUR 0.40 and HOLD-rating.

Innofactor - Still a lot to prove

31.10.2018 | Company update

Innofactor’s Q3 results were below our estimates, mainly on profitability, with EBIT at EUR -1.2m (Evli -0.3m). Focus lies on reorganization and with the measures taken Innofactor expects a positive impact on EBITDA of 2.4m from 2019 onwards. We retain our HOLD rating with a TP of EUR 0.55 (0.70).

Profitability affected by lower sales

Innofactor’s Q3 results fell below our estimates. Revenue amounted to EUR 13.8m (Evli 14.2m) while EBIT fell to EUR -1.2m (Evli -0.3m). The low profitability was at least partly due to the lower sales. Innofactor completed cooperation negotiations and combined with reorganizations expects a positive impact on EBITDA of EUR 2.4m from 2019 onwards. Reorganizations are expected to contribute EUR 1.0m, to be achieved through reorganizing tasks, enabling more customer work hours. The Finnish delivery organization is being scaled down from seven to four organizational levels. The Finnish organization will further be reorganized into smaller self-organized teams. To our understanding one key goal is to enhance decision making especially in sales.

Profitability upside potential, sales growth a question mark

We expect EBITDA to turn positive in Q4, which typically is a stronger quarter for Innofactor. Our 2018 sales and EBITDA estimates are at EUR 65.1m and EUR 0.3m respectively. The organizational actions being taken in our view give prerequisites for improved profitability in 2019. The scaling down of the organization alone should prove beneficial, as the organization has been growing faster than sales. We remain conservative on sales growth in 2019, as we expect the changes to have some negative short-term impact and with the sales track recently Innofactor still has a lot to prove.

HOLD with a target price of EUR 0.55 (0.70)

The reorganization measures, if successful, would provide some breathing room for Innofactor, but pick-up in sales in our view remains a key driver for normalizing profitability. We retain our HOLD-rating with a target price of EUR 0.55 (0.70).

Innofactor - EBIT misses estimates

30.10.2018 | Earnings Flash

Innofactor’s Q3 results were below our estimates. Net sales amounted to EUR 13.8m (Evli 14.2m) while EBIT was weak, at EUR -1.2m (Evli -0.3m), partly due to the lower net sales. Innofactor concluded co-operation negotiations and reorganizations, expecting a total positive impact on group EBITDA of EUR 2.4m beginning in 2019.

  • Net sales in Q3 amounted to EUR 13.8m, slightly below our estimates of EUR 14.2m. Sales growth in Q3 was -2.5 % y/y.
  • EBIT in Q3 was EUR -1.2m, falling below our estimates (Evli EUR -0.3m), at an EBIT-margin of -8.6 %. The weaker profitability was partly due to lower than expected sales.
  • Guidance (updated 8.10.2018) intact: Innofactor’s net sales are expected to remain at 2017 levels (EUR 65.7m) and operating margin (EBITDA) in 2018 is estimated to be weaker than in 2017 (EUR 1.3m) but positive.
  • Operating cash flow during Jan-Sep 2018 was EUR -1.9m.
  • Active personnel at the end of the period 591 (2017: 623)
  • Innofactor concluded co-operation negotiations and reorganizations, expecting a total positive impact on group EBITDA of EUR 2.4m beginning in 2019.

Innofactor Q220 interview with CEO Sami Ensio

Innofactor - Q2'20 video interview with CEO Sami Ensio

28.07.2020
Innofactor Q120 video interview with CEO Sami Ensio full

Innofactor - Q1'20 video interview with CEO Sami Ensio

05.05.2020
Innofactor Q419 video interview with CEO Sami Ensio full

Innofactor - Q4/19 video interview with CEO Sami Ensio

25.02.2020
Innofactor Q319 interview with CEO Sami Ensio

Innofactor - Q3/19 video interview with CEO Sami Ensio

29.10.2019
Innofactor company presentation 26082019

Innofactor - Company presentation

26.08.2019
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Innofactor company presentation 26082019

Video presentation

Company Facts

Guidance

Net sales and EBITDA in 2020 are expected to increase compared with 2019

Financial targets

Long-term financial goal: Achieving an annual growth of approximately 20 percent, of which majority is intended to be achieved by organic growth, and achieving approximately 20 percent operating margin (EBITDA) in relation to the net sales, and by keeping the cash flow positive and by securing solid financial standing in all situations.

Share price (EUR)


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