Innofactor - Ups and downs

Some challenges in Q2
Innofactor reported rather decent results despite margins falling short of our estimates. Net sales amounted to EUR 20.1m (Evli EUR 19.4m), growing by 18.6% y/y and 11.1% organically. EBITDA amounted to EUR 1.8m (Evli EUR 2.3m). Q2 was affected by Easter and other weekday holidays and usage of flexi leaves around these. Onboarding of a notable number of new employees also reduced invoicing rates during April-May, while Innofactor in June achieved its highest single-month billing rate since going public. Exchange rates also had a significant negative impact. The order backlog remained on previous year levels, at EUR 77.3m, with the price competition for public sector tenders having increased significantly during the quarter. 

Expect improvements towards the end of the year
The increased price competition causes some concerns for the remainder of the year. Although the prices in public tenders appear unsustainable and will likely rebound, we expect competition to still remain tough. The backlog supports growth for now, but new sales will need to pick up for Innofactor to remain on a more rapid growth track. The more recent development of billing rates is encouraging and along with the recent recruitments and reduced employee turnover providing support for margin improvement. In terms of financial figures, we expect Q3 to likely still be a bit more challenging but Q4 to be notably better. We have made only smaller adjustments to our estimates for 2023e, mainly due to Q2 figures.  

BUY with a target price of EUR 1.5 (1.6)
With the slight headwinds seen, as well as the minor downward adjustments to our estimates, we lower our target price to EUR 1.5 (1.6) but retain our BUY-rating. Although valuation is currently rather fair on our 2023 estimates, we see valuation remaining favourable due to the margin improvement potential.