Nordic digital transformation and cloud solutions provider
Innofactor showed promising progress in Q3, boding well for 2023, and now needs to provide further signs of sustained performance given recent challenges. We retain our target price of EUR 1.25 and BUY-rating intact.
Clear growth boost in Q3
Innofactor reported better than expected results. Growth clearly picked up a notch, 21.5% y/y (13.4% organic), with net sales of EUR 16.7m (Evli 14.9m). Growth was aided by improved invoicing rates following actions implemented after the weaker H1. Profitability came in line with our expectations, with EBITDA of EUR 1.8m (Evli EUR 1.9m). Relative profitability was in our view slightly soft but still at good levels. Subcontracting expenses increased y/y and the improvement in invoicing was gradual throughout the quarter, with September having been strong according to the company. The order backlog was up 7.3% y/y.
Potential for 2023 but too early to get overly excited
The achieved sales growth in Q3 along with the gradually improved invoicing rate provides very good support for the end of the year and confidence for Q4 appears to be strong. With the demand situation looking unchanged and should the achieved efficiency be sustained, Innofactor is set for notable earnings improvement potential heading into 2023. The sustainability of the higher operative performance remains a key concern given recent challenges, and further proof is warranted. We currently estimate a ~2%p increase in the EBITDA-margin in 2023 should the late-Q3 performance be sustained in the near future, although H1/22 was soft, and the potential is bigger than that.
BUY with a target price of EUR 1.25
Innofactor currently trades below peers. In our view this is not fully unjustified given the sub-par performance during 2022. We, however, still see that the shown improvement signs and potential still supports valuation upside. We retain our target price of EUR 1.25, valuing Innofactor near the peer median, and our BUY-rating intact. We note that peer multiples have come down recently and in absolute terms, the implied 2023 target P/E of ~10.5x is not overly challenging.
Innofactor’s Q3 results were better than expected. Net sales turned to a clear growth of 21.5% y/y to EUR 16.7m (Evli EUR 14.9m) aided by improved invoicing rates after the more challenging first half of 2022. Q3 EBIT of EUR 1.0m was in line with our estimates (Evli EUR 1.1m).
Innofactor’s Q2 results were weaker than anticipated to a weakened billing rate and individual project delivery challenges. Improvement is needed during H2 to achieve the FY ‘22 guidance. Near-term operational capabilities are still of some concern, but the potential is still quite solid. We adjust our TP to EUR 1.25 (1.6), BUY-rating intact.
Top-line and bottom-line figures short of our estimates
Innofactor’s Q2 results fell short of our expectations. A weakened billing rate and challenges relating to individual project deliveries resulted in a slight y/y decline in revenue to EUR 16.9m (Evli EUR 17.7m). As a result, the operating profit also fell to EUR 0.7m (Evli EUR 1.4m) for a rather meager operating profit margin of 3.9%. The order backlog remained at a good level of EUR 77.2m, up 6.1% y/y. During the quarter, Innofactor acquired Invenco Ltd, a company specializing in data and analytics, with some 50 employees and EUR 6m in annual revenue.
Improvement needed during H2
Following the weaker first half of the year, on our revised estimates, we expect Innofactor to be able to beat its guidance with a slim margin essentially thanks to the acquisition of Invenco. EBITDA-margins should return to ~12% during H2, a level that under current circumstances could be seen as a normal level for Innofactor. Despite the implied one-off nature of the project delivery challenges we are slightly concerned for the operational delivery capabilities and the revenue trend in relation to the order backlog growth. Still, the potential is still quite solid and with the acquisition of Invenco and a normal profitability EPS would on our estimates grow 30% y/y in 2023.
BUY with a target price of EUR 1.25 (1.60)
With our revised estimates and continued operational uncertainty, as well as declines in peer multiples, we adjust our target to EUR 1.25 (EUR 1.60). Our TP values Innofactor at a slight discount to peers. Upside potential is provided by the profitability improvement potential. We retain our BUY-rating.
Innofactor’s Q2 results were weaker than expected. Net sales declined 2% y/y to EUR 16.9m (Evli EUR 17.7m) due to a weakened invoicing ratio and individual project delivery challenges. Q2 EBIT of EUR 0.7m was also clearly weaker than in the comparison period and our estimates (Evli EUR 1.4m).
Innofactor’s revenue development in Q1 was weakened by increased absences due to sickness, while profitability climbed back to rather healthy levels. Signs of clear pick-up in growth remain limited but potential exists.
Revenue development affected by absences due to sickness
Innofactor’s Q1 results were two-fold. Revenue development was weaker than expected, declining 1.5% y/y in comparable terms to EUR 17.0m (Evli EUR 17.7m). Growth was affected by absences due to sickness as a result of the pandemic, which approximately doubled in Q1 from the previous year, and revenue in Finland and Sweden decreased. Despite the lower revenue profitability was still at a fairly good level, with EBITDA of EUR 2.0m (Evli EUR 1.8m) and a corresponding margin of 12.0%. The performance in Denmark and Norway was good according to management. The order backlog grew only 3.5% to EUR 71.3m, but Innofactor has received several significant orders not yet in the backlog and the growth could as such have been better.
Slight growth and profitability improvement in 2022
Innofactor expects revenue to grow y/y and EBITDA to improve from EUR 7.5m in 2022. Growth continues to be somewhat challenging, although the impact of sick leaves should reasonably decline going forward. Innofactor has had success in recruitments, namely within younger talents, and the headcount turned to a very slight growth. With minor estimates adjustments we now expect growth of 2.4% and an EBITDA of EUR 8.4m (12.4% of sales). In the near-term, being able to improve utilization rates could bring a boost to financials, while more rapid growth would in our view require M&A activity.
BUY with a target price of EUR 1.6
With our estimates largely intact we retain our target price of EUR 1.6 and BUY-rating. Innofactor’s growth outlook is currently admittedly rather lack-luster, but the market situation remains good, and growth and profitability improvement potential and rather healthy expected dividend yields support the case.
Innofactor’s Q1 results were slightly better than expected. Although net sales of EUR 17.0m were below expectations (Evli EUR 17.8m), with sales having decreased in Finland and Sweden due to increased sick leaves, profitability was at good levels after some challenges during H2/21, with EBITDA amounting to EUR 2.0m (Evli EUR 1.8m).
Innofactor’s Q4 fell well short of our expectations as the company saw challenges relating to organizational changes and employee turnover. We have lowered our 2022 estimates and our TP to EUR 1.6 (2.1), BUY-rating intact.
Challenging last quarter of 2021
Innofactor’s Q4 results fell well short of our estimates, as the company faced challenges with the organizational changes in Finland and employee turnover. Net sales amounted to EUR 17.5m (Evli EUR 18.6m), declining 4% y/y but in comparable terms on par with Q4/20. EBITDA was EUR 1.7m (EUR 2.6m Evli), falling from the Q4/20 adj. EBITDA level of EUR 2.6m. Profitability was effectively down solely due to the challenges noted, although EBIT included larger one-off amortizations. The order backlog was at EUR 72.8m, up 20.6% y/y.
Poised to improve but some concerns remain
Innofactor expects its revenue in 2022 to increase from 2021 while EBITDA is expected to increase from EUR 7.5m, which would have been 2021 EBITDA without proceeds from the Prime business divestment. We have lowered our estimates for 2022, now expecting net sales of EUR 69.0m (prev. EUR 70.1m) and EBITDA of EUR 8.1m (prev. 9.5m). The organizational changes were started during Q3 and should impact to a clearly lesser extent going forward and the employee turnover appears to have peaked in Q3, which led to a spillover in Q4. The situation was more towards the normal in Q4 and the headcount began to grow, but the recruitment market has however been challenging for a while and we see this as a continued concern. Fundamentally Innofactor is in our view in a good position to post improved profitability figures in 2022, with all countries also having posted clearly positive EBITDA figures in Q4.
BUY-rating with a target price of EUR 1.6 (2.1)
On our revised estimates and some uncertainty going into 2022 we cut our TP to EUR 1.6 (2.1), valuing Innofactor at approx. 17x 2022 P/E. We see reasonable potential for higher than estimated profitability with the good order backlog levels should challenges not persist. We retain our BUY-rating.
Innofactor’s Q4 results were below our expectations. Net sales amounted to EUR 17.5m (Evli EUR 18.6m), while EBITDA amounted to EUR 1.7m (Evli EUR 2.6m). Net sales in 2022 are expected to increase from 2021 and EBITDA from comparable 2021 EBITDA of EUR 7.5m. Dividend proposal EUR 0.08 per share (Evli EUR 0.06).
Innofactor’s Q3 profitability remained at good levels but growth was not quite as good as expected due to organizational restructuring causing a sales dip in Finland. Recruitments pose some concerns for future growth but all in all the Q3 report did not change much.
Some weakness in sales but profitability remained good
Innofactor reported its Q3 results, which fell slightly short of our expectations. Revenue declined 2.0% y/y but grew 3.0% organically to EUR 13.7m (Evli 14.5m). Revenue growth was affected by organizational restructuring in Finland, which led to a slight dip in domestic sales. EBITDA and EBIT amounted to EUR 1.7m (Evli 1.8m) and EUR 0.9m (Evli EUR 1.0m) respectively, with all other countries except Sweden showing positive EBITDA. With no significant new orders, the order backlog growth halted q/q, but was still up 24% y/y at EUR 72.0m. Innofactor reiterated its guidance, expecting revenue and EBITDA to increase compared to 2020. The Q3 report was in our view slightly more on the negative side, as although profitability remained on good levels the slower sales growth and lower headcount (-9.0% y/y) adds some pressure to growth expectations going forward.
Expect modest growth, new recruitments a slight concern
We have made some minor downward tweaks to our estimates but overall no notable changes. We expect growth of 1.9% and some 5-6% organically (excl. Prime divestment) in 2021. We expect EBITDA (excl. NRI’s) to improve to EUR 8.3m (2020: 7.2m), at a sound margin of around 12%. Our growth estimates for 2022-2023 remain quite low, at 4% and 3% respectively, given the company’s 20% long-term growth target. The lower headcount in Q3 and the noted challenges in the recruitment market raises some additional concerns for growth and is something that we will be monitoring during the coming quarters.
BUY with a target price of EUR 2.1 (2.2)
With the slight additional pressure on growth we adjust our TP to EUR 2.1 (2.2) and retain our BUY-rating. Our target price values Innofactor at approx. 19x 2021e adj. P/E.
Innofactor’s Q3 results were close to our expectations. Net sales amounted to EUR 13.7m (Evli EUR 14.5m), while EBITDA amounted to EUR 1.7m (Evli EUR 1.8m). The order backlog growth halted due to a lack of new significant orders but was still up 24% y/y at EUR 72.0m.
• Net sales in Q3 amounted to EUR 13.7m (EUR 14.0m in Q3/20), slightly below our estimates (Evli EUR 14.5m). Net sales in Q3 declined 2.0% y/y but grew 3.0% organically. Revenue growth in Finland saw a minor negative impact caused by organizational restructuring.
• EBITDA in Q3 was EUR 1.7m (EUR 1.6m in Q3/20), in line with our estimates (Evli EUR 1.8m), at a margin of 12.3%. EBITDA was positive in Finland, Norway and Denmark.
• Operating profit in Q3 amounted to EUR 0.9m (EUR 0.4m in Q3/20), in line with our estimates (Evli EUR 1.0m), at a margin of 6.7%.
• Order backlog at EUR 72.0m, up 24% y/y. Q3 saw no new significant orders received and as such the order backlog remained on previous quarter levels.
• At the end of August, Innofactor decided to renew its strategy to support growth even more strongly, tightening its offering according to the growth areas in question: Digital Services, Business Solutions, Information and Case Management, Data and Analytics, Cloud Infrastructure and Cybersecurity.
• Guidance reiterated: Innofactor’s net sales and EBITDA in 2021 are estimated to increase compared to 2020 (net sales and EBITDA EUR 66.3m and EUR 7.2m respectively).
Innofactor’s Q2 results were well in line with expectations. We have made essentially no changes to our estimates and continue to expect modest growth and notable profitability improvement. We retain our BUY-rating and target price of EUR 2.2.
Q2 well in line with our expectations
Innofactor reported its Q2 results, which were well in line with our expectations. Revenue grew 3.2% y/y, 7.6% organically, to EUR 17.3m (Evli 17.3m). Revenue growth turned positive again in all countries. EBITDA and EBIT amounted to EUR 2.1m (Evli 2.2m) and EUR 1.3m (Evli EUR 1.4m) respectively, with all other countries except Sweden showing positive figures. The order backlog continued to grow nicely, up 28% y/y to EUR 72.7m. Innofactor reiterated its guidance, expecting revenue and EBITDA to increase compared to 2020. Innofactor made an early repayment of loans for EUR 2.7m, improving the equity ratio and net gearing to 49.9% and 30.5% respectively, while still leaving the cash position on par with 2020 year-end figures. All in all, the Q2 report was quite neutral and held little significant new information.
No notable changes to our estimates
We have made essentially no changes to our estimates. We expect revenue in 2021 to grow 3.4% EUR 68.4m and EBIT (excl. PPA and Prime divestment) to improve to EUR 6.0m (2020: EUR 4.4m). We expect slight pick-up in growth during H2 accounting for the impact of COVID-19 on 2020 comparison figures supported by the solid order backlog. Positive signs in the other Nordic countries speak for a potential pick-up in the growth pace, with growth recently having been driven to a larger extent by Finland.
BUY with a target price of EUR 2.2
With no essential changes to our estimates or view on Innofactor as an investment case we retain our BUY-rating and target price of EUR 2.2. Our target price values Innofactor at a slight discount to peers on adj. multiples, which we still consider fair given the lower growth pace.
Innofactor’s Q2 results were as expected. Net sales amounted to EUR 17.3m (Evli EUR 17.3m), while EBITDA amounted to EUR 2.1m (Evli EUR 2.2m). The order backlog continued to grow well, up 28% y/y to EUR 72.7m.
Innofactor reported Q1 results well in line with our estimates. We expect sales growth to pick up during the year in comparable terms supported by the healthy order backlog and expect to see continued margin improvement. We retain our BUY-rating and TP of EUR 2.2.
Q1 well in line with our estimates
Innofactor reported Q1 results that were well in line with our expectations. Revenue grew 3.8% to EUR 17.8m (Evli EUR 17.9m) while EBITDA amounted to EUR 4.7m (Evli EUR 4.8m). EBITDA included the EUR 2.6m one-off relating to the Prime business divestment and the adj. EBITDA of EUR 2.1m showed growth of 7.3% y/y. The order backlog in Q1 was at a record level of EUR 68.9m (+27.4% y/y), aided by the biggest individual deal in Innofactor’s history signed with the Finnish Tax Administration. The report overall did not hold any material negative news in our view. Management comments on the impacts of the COVID-19 pandemic and sales development outside Finland, were sales have been more challenging, were modestly upbeat.
No notable changes to our estimates
Our estimates remain essentially intact apart from minor adjustments due to lower than estimated acquisition amortizations in Q1. We expect sales in 2021 to grow 3.4% y/y (comparable growth 6.3%) to EUR 68.4m and EBITDA (excl. Prime div.) to amount to EUR 8.7m. In relation to the past years performance our growth assumptions appear unmerited and the company still has quite a lot to prove in terms of growth. With the record-high order backlog and management comments on the impacts of the pandemic and sales development outside Finland, pick-up in sales growth should certainly be within grasp.
BUY with a target price of EUR 2.2
With no major changes to our estimates or the investment case we retain our target price of EUR 2.2 and BUY-rating. Our TP values Innofactor slightly below peers, which we see justified given its track-record in previous years.
Innofactor’s Q1 results were in line with our expectations. Net sales amounted to EUR 17.8m (Evli EUR 17.9m), while EBITDA amounted to EUR 4.7m (Evli EUR 4.8m). EBITDA included a one-off of approx. EUR 2.6m related to the Prime business divestment.
Innofactor is set to post solid Q1/21 figures with the one-off from the Prime business divestment. With a solid cash position and ambitious long-term growth targets we expect to start seeing measures to boost growth. We retain our BUY-rating with a target price of EUR 2.2 (1.75).
Q1 boosted by divestment one-off
Innofactor will publish its Q1 results on April 27th. Innofactor earlier announced that it had agreed to sell its resource management software solution business, Innofactor Prime, to Total Specific Solutions. The transaction is to have a positive impact of approx. EUR 2.6m on Q1/21 EBITDA and a negative impact of approx. EUR 2.0m on 2021 sales. As such, Innofactor should report exceptionally strong EBITDA in Q1/21, with our estimate at EUR 4.8m. We expect sales to continue on the modest growth trend seen in late 2020 and expect sales to grow 4.4% to EUR 17.9m. Growth is supported by the positive development of the order backlog, which at the end of 2020 was up some 21% y/y.
Expecting to see measures to boost growth
With the divestment of Innofactor Prime we have lowered our 2021 sales estimates and slightly lowered our profitability figures (excl. Prime div.). We now expect sales of EUR 68.4m (2020: 66.2m) and EBITDA (excl. Prime div.) of EUR 8.9m (2020: EUR 7.2m). Innofactor expects net sales and EBITDA in 2021 to grow compared with 2020. Innofactor’s cash position was at a healthy level already at the end of 2020, now further strengthened by the proceeds from the Prime divestment, and it is likely only a matter of time until acquisitions start picking up again to speed up growth.
BUY with a target price of EUR 2.2 (1.75)
Innofactor’s share price has now recovered from the dip in previous years and valuation is no longer quite as cheap. Compared to peers, valuation is still not too stretched. We expect to start seeing measures to boost growth further, which would further warrant higher multiples. We adjust our TP to EUR 2.2 (1.75) and retain our BUY-rating.
Innofactor reported solid Q4 figures, adjusted for one-offs, and proposed the first dividend distribution in company history. We expect a pick-up in growth and continued margin improvement in 2021. We retain our BUY-rating with a target price of EUR 1.75 (1.45).
One-offs hampered otherwise solid figures
Innofactor reported in our view solid Q4 earnings. Although EBITDA was below our estimates at EUR 1.6m (Evli EUR 2.1m), a one-off of approx. EUR 1.0m relating to a final write-down and cost item of a customer project in Sweden was included, without which EBITDA would have clearly exceeded expectations. Net sales were also slightly above our estimates at EUR 18.3m (Evli EUR 17.6m), showing modest growth of 4.7% y/y. A dividend distribution of EUR 0.04 per share was proposed (Evli EUR 0.03), with authorization being sought for a further potential extra dividend of max 0.04 per share, which if granted and utilized in full would translate to a dividend yield of 5.6%.
Growth and improved profitability expected
Innofactor followed its usual line of guidance, expecting net sales and EBITDA to increase in 2021 compared with 2020. We expect sales growth of 6.4% and EBITDA-margins to improve to 13.1% (2020: 10.8%). With the good order backlog and a balance sheet supportive of acquisitions growth could pick up more clearly, but uncertainty, especially given the on-going pandemic, is still at higher levels and as such we are still wary of assuming higher growth figures. Innofactor is still quite some way from its 20% growth and EBITDA-% target but the targets do not appear to be quite as out of grasp as earlier.
BUY-rating with a target price of EUR 1.75 (1.45)
On our revised estimates we raise our target price to EUR 1.75 (1.45), valuing Innofactor at ~14x 2021 PPA adj. P/E, with our BUY-rating intact. Further upside potential compared to peer multiples still exists, but we consider further evidence of growth pick-up and earnings improvement mandated to justify a higher valuation.
Innofactor’s Q4 results were on an adj. basis above our expectations. Net sales amounted to EUR 18.3m (Evli EUR 17.6m), while EBITDA amounted to EUR 1.6m (Evli EUR 2.1m). EBITDA included one-offs of EUR 1.0m and adj. figures were better than expected. Dividend proposal EUR 0.04 per share (Evli EUR 0.03). Net sales and EBITDA in 2021 are estimated to increase compared to 2020.
Innofactor reported good results in the quarter expected to be most hit by negative impact of the pandemic. The outlook for 2021 remains positive but we have yet to see signs of the next clear steps of growth pick-up and margin improvement. Valuation still remains attractive and we adjust our TP to EUR 1.45 (1.35) and retain our BUY-rating.
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.
Innofactor’s Q3 results were slightly above our expectations and figures were fairly good given the expected COVID-19 related weakness in the quarter. The net sales amounted to EUR 14.0m (Evli EUR 13.8m), while EBITDA amounted to EUR 1.6m (Evli EUR 1.3m). Guidance remains intact. The impact of the pandemic on Q3 was in line with company expectations.
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’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.
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’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.
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’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).
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’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.
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’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).
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’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’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 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)
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 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 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’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’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.
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Innofactor’s net sales in 2022 is estimated to increase from 2021 (EUR 66.4m). Innofactor's operating margin (EBITDA) is estimated to increase from EUR 7.5 million, the 2021 operating margin excluding proceeds from the sale of the Prime business.
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.
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