A rapidly growing IT services company
Netum lowered its earnings guidance for 2022 following elevated H1 costs, while preliminary figures showed faster than expected growth, with the news in our view overall on the neutral/slightly positive side. We retain our target price of EUR 4.3 and HOLD-rating.
Solid growth in H1 but softness in profitability
Netum provided preliminary information on its H1 results and lowered its earnings guidance. Netum’s revenue growth was faster than anticipated, up 47.8% y/y to EUR 15.4m (Evli EUR 14.1m). EBITA amounted to EUR 1.7m (Evli EUR 2.0m), with the EBITA-margin falling to 11.2% of revenue (H1/2021: 17.1%). Netum lowered its earnings guidance for 2022, now expecting an EBITA-margin of 12-14%, having previously expected to achieve an EBITA-margin of at least 14%. The company’s revenue is intact, with revenue expected to grow over 30% y/y. The lowered earnings guidance is due to larger than expected investments in personnel growth made in the first half of 2022, a higher than usual volume of subcontracting, sick leaves caused by the coronavirus and the general cost increase.
Announcement in our view neutral/slightly positive
The lower relative profitability is slightly on the negative side but given that the cost increase appears to be largely related to enabling growth, coupled with a good demand and faster than anticipated H1 growth, the development in our view is more on the neutral/slightly positive side. The revised guidance also implies profitability improvements in H2, but the development of the company’s cost base will still be something to watch going forward. We have revised our estimates, now expecting 2022 revenue of EUR 31.9m (prev. 29.6m), a y/y growth of 42.4%, and an EBITA of EUR 3.9m, (prev. 4.2m) for a 12.4% EBITA-margin.
HOLD-rating with a target price of EUR 4.3
We retain our target price of EUR 4.3 and HOLD-rating. Our TP values Netum at 16.1x and 11.9x 2022e and 2023e P/E (goodwill amort. adj.). We consider a premium to peers justified given the rapid growth and still rather healthy profitability, with the current valuation level rather fair given some uncertainty.
Netum provided preliminary H1/2022 figures, with growth better than we had expected while profitability was slightly weaker due to personnel growth, increased subcontracting, sick leaves and general cost increase. Netum still expects over 30% growth in 2022, EBITA now expected to be 12-14% of revenue (prev. over 14%).
Netum’s H2 results were well in line with expectations. Continued rapid and profitable growth is seen in 2022 despite some potential demand uncertainty.
No surprises in H2 results
Netum reported H2 results in line with our estimates. Revenue grew 33.4% (18.6% organic growth) EUR 12.0m (Evli EUR 11.9m) and EBITA amounted to EUR 3.1m (Evli EUR 3.1m, pre-announced). Growth was driven by successful recruitments and new customer acquisition and also to some extent by higher pricing levels. Netum’s BoD proposes a dividend of EUR 0.11 per share (Evli EUR 0.09). In 2022 the company expects revenue to grow by over 30% from 2021 and the EBITA-margin to be above 14%.
Expecting over 30% growth in 2022
Netum’s growth guidance is above our previous estimates (22%) and adjusted for the impact of the Cerion Solutions acquisition implies continued clear double-digit organic growth, which given the growth in headcount (2020: 130 -> 2021: 217) should be well achievable should the demand situation not deteriorate. On our revised estimates we expect revenue of EUR 29.6m (+32% y/y) and an EBITA-margin of 14.3%. Margins have been at good levels, and we see limited near-term upside apart from a potential slight boost from frontloaded recruitments converting to revenue and thus higher revenue/employee. Netum updated its strategy and financial targets, seeking revenue of EUR 50m by 2025, implying annual growth of over 20%. The company seeks to maintain an EBITA-margin of over 14%. Netum noted that it is looking into expansion in the Nordics/Baltics, which could help in achieving the growth target, but such a move would in our view unlikely be seen before 2024.
HOLD with a target price of EUR 4.3
Demand uncertainty has increased due to the on-going conflict and peer multiples have also seen some further depreciation from our previous update. With our raised growth estimates, however, we retain our TP of EUR 4.3, valuing Netum at 13.7x 2022e adj. P/E.
Netum’s H2 was in line with our expectations. Net sales grew 33.4% to EUR 12.0m (Evli EUR 11.9m) while the comparable EBITA amounted to EUR 1.5m (Evli EUR 1.5m). Netum expects its revenue to grow at least 30% and an EBITA-margin of over 14% in 2022. Dividend proposal: EUR 0.11 per share (Evli EUR 0.09).
Netum made some smaller adjustments to its guidance, with our main takeaway being the continued solid growth pace. We adjust our TP to EUR 4.3 (4.6) following recent market turbulence and peer multiple depreciation.
Some smaller tweaks to guidance
Netum specified its guidance for 2021 on January 24th, with the revisions appearing to be rather small in relation to our expectations. The company now expects revenue for FY 2021 to amount to slightly over EUR 22m, having previously expected EUR 20-22m. The comparable EBITA is expected to be EUR 3.1m (prev. EUR 3.1m-3.5m). The revised revenue forecast is due to the integration of Cerion Solutions (as of 1.10.2021) and stronger than expected organic growth. Netum’s profitability has been affected by new recruitments, with around 90 new employees during 2021 (12/2020: 130 employees), along with weaker margins in a single fixed-price customer project.
Solid growth prospects
We noted in conjunction with the Cerion Solutions acquisition, that the revenue guidance being kept intact despite the expected EUR 1m positive impact on 2021 revenue was somewhat surprising. Fortunately, with the revised guidance the concerns of implied slower growth are clearly reduced. The comparable EBITA was somewhat below our previous EUR 3.4m expectations, with the project challenges not accounted for. Considering the challenging recruiting environment, the rapid growth in personnel is commendable and sets the foundation for continued strong growth, and we expect a growth of 22% in 2022. We see some need for caution in profitability improvement expectations due to the rapid growth and for now expect similar unadj. margins as in 2021.
HOLD with a target price of EUR 4.3 (4.6)
The guidance revision was overall slightly positive news, should the noted project challenges not impact further. However, with the recent market turbulence and peer multiple depreciation we adjust our target price to EUR 4.3 (prev. EUR 4.6) and retain our HOLD-rating, valuing Netum at approx. 16x 2022e adj. P/E.
Netum grew faster than expected in H1 but otherwise showed little other surprises. Deal flow and growth in headcount provide good support for continued clear double-digit growth. We retain our HOLD-rating and adjust our target price to EUR 4.6 (4.4).
Growth surpassed expectations, no larger surprises
Netum reported its H1 results, which all in all were slightly better than expected. Revenue grew organically at a good pace of 21.7% to EUR 10.4m (Evli EUR 9.8m). The comparable EBITA grew to EUR 1.6m (Evli EUR 1.5m). The comp. EBITA-margin declined slightly y/y to 15.4% (H1/20: 17.2%), which can be largely explained by significant new recruitments. The company’s IPO had a negative impact of EUR 0.9m on earnings figures and the comparable EPS was at EUR 0.12 (H1/20: 0.15).
Growth prospects looking good
Netum has been very successful in new recruitments and the personnel grew by nearly 50% y/y to 171. As such the company has been able to manage profitability well given the quite minor dip in relative profitability. The deal flow has been good, including several significant long-term contracts, which with the success in recruitments should support growth remaining well in the double-digits in the near-term. The for Netum strategically important cyber security business was made a separate business area at the start of the year and has according to the company performed well, which in terms of relative growth has been a driver in our growth estimates. We have made minor, relatively insignificant upwards adjustments to our near- to mid-term estimates. Our 2021 estimates for net sales and comp. EBITA of EUR 21.6m and EUR 3.4m remain quite near the top of the company’s guidance of 2021 net sales and comp. EBITA of EUR 20-22m and EUR 3.1-3.5m respectively.
HOLD with a target price of EUR 4.6 (4.4)
In light of our minor estimates revisions and the good first half of 2021 we adjust our target price to EUR 4.6 (4.4). Our target price values Netum at approx. 20x 2021 adj. P/E (excl. IPO expenses and goodwill amortization). We retain our HOLD-rating.
Netum’s H1 was slightly above our expectations. Net sales grew 21.7% organically to EUR 10.4m (Evli EUR 9.8m) while the comparable EBITA amounted to EUR 1.6m (Evli EUR 1.5m). Netum reiterated its 2021 guidance, expecting net sales and comparable EBITA in 2021 to amount to EUR 20-22m and EUR 3.1-3.5m respectively.
Netum is a Finland-based strongly growing and profitable IT services company with over 20 years of experience of demanding IT projects. The company seeks to grow sales to EUR 30m by 2023 (20% p.a. implied) while maintaining an EBITDA margin of above 15%. We initiate coverage with HOLD and a target price of EUR 4.4, valuing Netum at approx. 18.4x 2021e adj. P/E.
Strong track record of profitable growth
Netum has been growing strongly in the past years, through both organic growth and M&A, with a CAGR of 22% in 2016-2020. Strong growth has been coupled with high margins as the average EBITA and EBIT margins between 2016-2020 have been 16.7% and 11.4% respectively. Both growth and profitability have been above the average level of Finnish competitors.
Proceeds from the IPO will be used to accelerate growth
Netum aims to grow rapidly organically and according to its financial targets, the company aims to achieve net sales of EUR 30m in 2023, which corresponds to 20% annual organic growth. In addition to organic growth, the company is actively looking for opportunities for inorganic growth and seeks to grow through selective acquisitions, aided by funds raised in the recently completed IPO. A core part of Netum’s strategy is to continue to achieve a good level or profitability while growing, and the target is to achieve an EBITDA margin of at least 15%.
HOLD with a target price of EUR 4.4
We initiate coverage of Netum with a HOLD-rating and target price of EUR 4.4. The share price rose clearly after the IPO and current valuation multiples are rather in line with the Finnish peers. In our view, Netum’s strong track record of growth, relatively high net sales/employee ratio and above-average profitability could even warrant a premium to our peer group. On the other hand, Netum’s smaller size, competition for skilled employees, concentrated customer base, and intensifying competition are factors to be taken into consideration when looking at valuation.
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Netum estimates net sales to increase by over 30% y/y in 2022 and the EBITA-margin to amount to 12-14%
Growth: net sales of EUR 50m in 2025. Profitability: above 14% EBITA-margin
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