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Innofactor - Some challenges with growth

Innofactor’s Q3 profitability remained at good levels but growth was not quite as good as expected due to organizational restructuring causing a sales dip in Finland. Recruitments pose some concerns for future growth but all in all the Q3 report did not change much.

Some weakness in sales but profitability remained good
Innofactor reported its Q3 results, which fell slightly short of our expectations. Revenue declined 2.0% y/y but grew 3.0% organically to EUR 13.7m (Evli 14.5m). Revenue growth was affected by organizational restructuring in Finland, which led to a slight dip in domestic sales. EBITDA and EBIT amounted to EUR 1.7m (Evli 1.8m) and EUR 0.9m (Evli EUR 1.0m) respectively, with all other countries except Sweden showing positive EBITDA. With no significant new orders, the order backlog growth halted q/q, but was still up 24% y/y at EUR 72.0m. Innofactor reiterated its guidance, expecting revenue and EBITDA to increase compared to 2020. The Q3 report was in our view slightly more on the negative side, as although profitability remained on good levels the slower sales growth and lower headcount (-9.0% y/y) adds some pressure to growth expectations going forward.

Expect modest growth, new recruitments a slight concern
We have made some minor downward tweaks to our estimates but overall no notable changes. We expect growth of 1.9% and some 5-6% organically (excl. Prime divestment) in 2021. We expect EBITDA (excl. NRI’s) to improve to EUR 8.3m (2020: 7.2m), at a sound margin of around 12%. Our growth estimates for 2022-2023 remain quite low, at 4% and 3% respectively, given the company’s 20% long-term growth target. The lower headcount in Q3 and the noted challenges in the recruitment market raises some additional concerns for growth and is something that we will be monitoring during the coming quarters.

BUY with a target price of EUR 2.1 (2.2)
With the slight additional pressure on growth we adjust our TP to EUR 2.1 (2.2) and retain our BUY-rating. Our target price values Innofactor at approx. 19x 2021e adj. P/E.

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