Innofactor - Holding firm in challenging market

Q1 in line with expectations
Innofactor reported Q1 results that were well in line with our estimates. Net sales grew 4.8% to EUR 21.2m (21.0m) while EBITDA amounted to EUR 2.6m (Evli EUR 2.6m). EBITDA was positive only in Finland and Norway. The order backlog continued to decline, down by 9.8% y/y to EUR 68.8m. Innofactor reiterated its guidance, expecting net sales and EBITDA to increase compared with 2023. The sales growth slowed down in Q1 as a result of the challenging market situation, with new sales continuing to be a challenge and billing rates also falling below company expectations. 

Looking at continued modest improvement
We have made essentially no changes to our estimates, expecting sales growth of 4.4% and an increase in EBITDA of 7% to EUR 9.8m in 2024. The continued challenges related to new sales and order backlog decline pose a concern and the Q1 comments didn’t give signals of notable improvement in the very near-term. Our assumptions rely on an improved situation during H2. Actions to be taken related to the use of subcontracting and personnel reductions in Sweden provide some additional support for maintaining current levels of profitability, with billings rates expected to remain on the weaker side. We expect similar, modest growth levels to continue in 2025. The current market situation is not ideal when looking at margin potential going forward, but assuming a pick-up in demand in 2024, especially in the higher margin solutions areas such as Digital solutions, we continue to see potential for some improvement. 

BUY with a target price of EUR 1.6 (1.5)
Innofactor again showed an ability to defend its margin levels in the challenging market. The market outlook remains rather weak, but signs are slowly pointing more towards an improvement than further deterioration. The valuation also continues to remain attractive (2024e P/E~9.5x).