Innofactor - Operational stability being achieved

Q1 results beat our expectations
Innofactor reported good Q1 results that beat our expectations. Net sales grew 19.2% y/y to EUR 20.2m (Evli EUR 18.3m). The growth in net sales amounted to 19.2%, of which 10.9% organic. EBITDA amounted to EUR 2.5m (Evli EUR 2.2m). The performance in Q1 was aided enhanced internal efficiency and the billing rates remaining at good levels, along with an increase in the number of employees and use of subcontracting. The order backlog was at EUR 76.3m, up 6.9% y/y. Innofactor reiterated its guidance, expecting net sales to increase from 2022 (EUR 71.1m) and EBITDA is expected to increase from 2022 (EUR 7.8m). 

Currently performing rather well
We have made only smaller upwards adjustments to our estimates based on the higher than anticipated Q1 results. The total revenue growth pace is expected to slow down with the fewer working days in Q2 and the impact of the Invenco acquisition only affecting H1. We still expect to see quite good organic growth supported by the order backlog and continued shift away from project business revenue towards revenue sources of more recurring nature. We do not expect significant margin improvement in the very near-term, with the implied performance of the Finnish business already at good levels, and growth investments likely to have minor impact. There is still room for improvement in the operations abroad, but that road has been bumpier and is likely to remain so in the near-term.

BUY with a target price of EUR 1.6 (1.5)
With further signs of Innofactor having achieved a more stable financial performance, we lift our target price slightly to EUR 1.6 (1.5) and retain our BUY-rating. The implied 2023e P/E of ~12.5x remains below the peer median. Further proof of double-digit organic growth and earnings stability would in our view provide further valuation upside.