Etteplan - Expecting continued improvement

Demand picture remains relatively unchanged

While Etteplan saw the first signs of improved investment activity in the European markets during Q1, we expect that the demand picture in Q2 has remained relatively unchanged when compared to Q1. We expect that the overall demand situation has remained rather weak yet demand in certain sectors such as defense and energy industry has remained at a good level. We are interested to hear comments on the demand situation for the company’s R&D related business as Etteplan expects demand related to product development to pick-up in H2. The ECB delivered its first 25 bps rate cut in June as was expected and the current consensus predicts two more rate cuts of 25 bps during the remainder of the year. While the rate cuts are positive for Etteplan’s end market demand, the pace of rate cuts going forward remains unknown.

Expecting growth driven by acquisitions

Etteplan’s second quarter last year was rather weak as the weaker market conditions began to show with especially the Software and Embedded Solutions underperforming our estimates. For Q2/24, we expect that Etteplan has been able to continue the positive development seen during the first quarter as we expect net sales growth coupled with margin gains y/y driven by the company’s adaptation measures to improve operational efficiency. We anticipate that the primary growth engine in the second quarter of 2024 has continued to be the acquisitions completed in 2023 and early 2024. In addition, we see improved organic net sales development with slightly weaker comparable period and a positive calendar effect.

BUY with a TP of EUR 14.5

Etteplan trades at a discount to both its own historic multiple levels and its peer group. We note that a slight premium to peer group is justified driven by the above average margins, capital efficiency, and strong cash flow generation capability. We retain our TP of EUR 14.5 and rating at BUY.