Solteq |

Nordic IT service provider and software house

| Finland

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Financial overview

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Solteq - Minor bumps, narrative unchanged

30.10.2019 | Company update

Solteq’s Q3 results fell short of our expectations due to the postponement of certain customer projects. Net sales were EUR 13.0m (Evli 13.5m) and EBIT EUR 0.3m (Evli 0.7m), with Q3 providing no other surprises. Solteq announced plans to implement a new structure during 2020, with two business segments, and their long-term financial targets. We retain our HOLD-rating with a TP of EUR 1.50.

Estimates miss from project postponements

Solteq’s Q3 results fell short of our as well as company expectations. Revenue in Q3 grew 1.2% to EUR 13.0m (Evli 13.5m) and EBIT amounted to EUR 0.3m (Evli 0.7m). The third quarter was impacted by the postponement of certain customer projects to the fourth quarter, with the value of a single postponed order at more than EUR 0.3m. Aside from the impact of the postponed projects the Q3 results provided no surprises. Solteq noted a continued positive development of its order backlog.

Plans to change segment structure during 2020

Solteq announced intentions to change its segment structure during 2020 into two business segments: Solteq Software and Solteq Digital. Solteq Software will focus on the company’s own products and Solteq Digital on IT expert services. The long-term financial targets for Software/Digital are: minimum average annual revenue growth 20%/5% and minimum EBIT-margin 25%/8%. For some perspective, this could imply Group EBIT-margins well over 10% by 2022.

HOLD with a target price of EUR 1.50

We have lowered our 2019 net sales and EBIT estimates to EUR 58.3m (prev. 58.9m) and EUR 3.9m (prev. 4.4m), with only minor adjustments to our coming year estimates. Solteq as an investment case relies on the transition towards own software and related services and some positive signs were seen from order inflow during Q3, although not large enough to warrant changes to our views. With our estimates largely intact we retain our HOLD-rating and target price of EUR 1.50.

Solteq - EBIT miss from project postponements

29.10.2019 | Earnings Flash

Solteq's Q3 results were slightly below our estimates. Net sales in Q3 amounted to EUR 13.0m (Evli EUR 13.5m), while EBIT amounted to EUR 0.3m (Evli EUR 0.7m). The operating profit was affected by the postponement of certain customer projects. Solteq reiterated its guidance, expecting the operating profit to grow clearly compared to the financial year 2018.

  • Net sales in Q3 were EUR 13.0m (EUR 12.8m in Q3/18), slightly below our estimates (Evli EUR 13.5m). Growth in Q3 amounted to 1.2 % y/y. The revenue of overseas subsidiaries increased considerably.
  • Operating profit and adjusted operating profit in Q3 amounted to EUR 0.3m (EUR 0.5m in Q3/18), below our estimates (Evli EUR 0.7m), at a margin of 2.2 %. The operating profit was below company expectations due to the postponement of certain customer projects to the fourth quarter.
  • Product development investments during Q3/19 amounted to EUR 0.9m (1-9/2019: EUR 3.0m), co’s FY2019 estimate EUR 3.7m.
  • The group’s order intake continued to develop positively during Q3/19 and improved considerably compared to Q3/18.
  • Guidance reiterated: Solteq's operating profit is expected to grow clearly compared to the financial year 2018
  • Solteq further announced a change in reporting structure and will during 2020 implement and structure with two segments: Solteq Software and Solteq Digital. The average annual sales growth targets for the segments are 20% and 5% respectively and EBIT-margin targets 25% and 8% respectively.

Solteq - Showing promising progress

14.08.2019 | Company update

Solteq’s Q2 results were slightly better than our expectations, with net sales at EUR 14.7m (Evli 14.4m) and EBIT at EUR 0.6m (Evli 0.5m). The report mostly implied business as usual, with encouraging comments on order intake development. We have made minor estimates revisions, now expecting a 2019 EBIT-margin of 7.4% (prev. 6.8%). We raise our target price to EUR 1.5 (1.4) and retain our HOLD-rating.

Q2 slightly better than expected

Solteq posted Q2 results slightly better than our expectations. Net sales amounted to EUR 14.7m vs. our estimate of EUR 14.4m. Growth picked up slightly in Q2, at 3.0% y/y, with the revenue of the international subsidiaries having grown significantly. The order intake has according to the company continued to develop positively and was larger than in the comparison period. Q2 EBIT amounted to EUR 0.6 vs. our estimate of EUR 0.5m. Product development investments grew to EUR 1.1m (0.6m), with the co’s full year estimate still at EUR 3.5m.

Slight upwards revisions of our estimates

We have made only minor adjustments to our estimates post-Q2. We expect sales in 2019 to grow 3.5% to EUR 58.9m, supported by a favourable order intake development and expect continued solid growth internationally. We expect the operating profit margin in 2019 to improve to 7.4% (prev. est. 6.8%) from 4.3% in 2018, driven by the actions taken to improve operational efficiency during 2018. Solteq has guided for its operating profit in 2019 to grow clearly compared to 2018.

HOLD with a target price of EUR 1.5 (1.4)

On 2019 peer multiples valuation still appears reasonably fair. Although we are not yet prepared to fully emphasize 2020 multiples, with the good progress so far during the year and our slightly raised estimates we raise our target price to EUR 1.5 (1.4) and retain our HOLD-rating.

Solteq - Results quite as expected

13.08.2019 | Earnings Flash

Solteq's Q2 results were slightly above our estimates. Net sales in Q2 amounted to EUR 14.7m (Evli EUR 14.4m), while EBIT amounted to EUR 0.6m (Evli EUR 0.5m). Solteq reiterated its guidance, expecting the operating profit to grow clearly compared to the financial year 2018.

  • Net sales in Q2 were EUR 14.7m (EUR 14.2m in Q2/18), slightly above our estimates (Evli EUR 14.4m). Growth in Q2 amounted to 3.0 % y/y. Revenue growth of international subsidiaries was significant.
  • Operating profit in Q2 amounted to EUR 0.6m (EUR 0m in Q2/18), above our estimates (Evli EUR 0.5m), at a margin of 3.9 %. The adjusted operating profit amounted to EUR 0.6m (Evli 0.5m), at a margin of 4.3%.
  • Product development investments during Q2/19 increased to EUR 1.1m (0.6m), co’s FY2019 estimate EUR 3.5m.
  • The group’s order intake developed positively during Q2/19 and was clearly better than in Q2/18.
  • Guidance reiterated: Solteq's operating profit is expected to grow clearly compared to the financial year 2018

Solteq - Initiating coverage with HOLD

27.06.2019 | Company report

Solteq has during the past years sought to shift its focus towards own cloud-based software products and services from a more IT-services oriented past. The strategic approach coupled with an increased focus on expansion internationally and new product development investments offer growth opportunities and margin improvement potential but the early stages of Solteq’s transition warrants caution. We initiate coverage of Solteq with a HOLD-rating and a target price of EUR 1.40.

Shifting focus towards own products and related services

Solteq is striving to transition from its more IT-services oriented past towards a company focused on own software products and related services, with strengths within commerce related solutions. Growth is sought from expansion internationally and product development investments such as autonomous service robotics solutions, while actions taken to enhance operational efficiency have and continue to aid margins.

Expect margin improvement and moderate growth

We expect a sales CAGR of near 3.5% between 2018-2021E, not including likely acquisitions, which have been elemental in achieving an average growth rate of over 10% p.a. since 2010. Operating profit margin development has been aided by actions to enhance operational efficiency and we expect further improvement to 6.8% in 2019E (2018: 4.3%).

Initiating coverage with HOLD and TP of EUR 1.40

We initiate coverage of Solteq with a HOLD-rating and a target price of EUR 1.40. Our valuation relies mainly on public Nordic IT-services oriented peer multiples. Based on our estimates and current valuation the 2019E and 2020E EV/EBIT and P/E multiples do not imply any notable upside, with the multiples generally in line with peers. Main drivers for valuation upside would in our view be faster revenue growth and margin improvement through a more rapid shift in the product mix and growth internationally. Investments into autonomous service robotics solutions are also a yet unproven but potentially very lucrative bet.

Solteq company presentation 20082019

Solteq - Company presentation

20.08.2019
ShareholdersDate% of shares% of votes
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Solteq company presentation 20082019

Video presentation

Company Facts

Guidance

The operating profit in 2019 is expected to grow clearly compared with 2018

Financial targets

Revenue growth over 20% p.a., operating profit margin of 8%, and net debt/EBITDA ratio below 3.5

Share price (EUR)


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