Innofactor- Good going, at least for now

Good Q3 results, in line with our estimates
Innofactor reported Q3 results that were quite in line with our estimates and the best third quarter in terms of revenue and EBITDA in the company’s history. Revenue grew 8.0% organically to EUR 18.0m (Evli EUR 18.1m) and EBITDA amounted to EUR 2.0m (Evli EUR 1.8m). Innofactor noted continued intense price competition, although the weighted average prices of new contracts increased slightly from the exceptionally tough second quarter in terms of price competition. New sales in Q3 were below target levels and no new significant tender offers were won. As a result, the order backlog declined by 7.6% y/y to EUR 71.4m.     

Market situation remains key concern
Innofactor’s financial development in the short-term remains well on track, but the market situation remains a concern for 2024. We expect to see some stabilization after the more recent period of high price competition but for the demand to remain weaker. We have lowered our sales estimates for 2024, expecting only slight growth. New sales, however, need to pick up in Q4 for the growth to continue. We have also slightly lowered our expectations for profitability in 2024 with the expected slower growth. Operatively, Innofactor still has room for margin improvement as EBITDA in the other Nordic countries, accounting for 28% of sales YTD, was mostly on the negative side. The market situation is, however, unlikely to alleviate the situation in the short-term. 

BUY with a target price of EUR 1.4 (1.5)
Innofactor’s valuation remains at a clear discount to peers despite good growth and improved profitability YTD. 2023e P/E of ~10x on the current share price is also not challenging. We retain our BUY-rating but adjust our target price to EUR 1.4 (1.5) on softer 2024e expectations.