Loihde - Looking for a solid finish to 2023

Profitability improved but lackluster growth 
Loihde’s Q3 results showed favourable profitability development but were somewhat below our estimates. The net sales development y/y was essentially flat, with net sales amounting to EUR 29.9m (Evli EUR 32.3m). The Group’s adj. EBITDA amounted to EUR 2.9m (4.0m), at a margin of 9.7%. Net sales in Security Solutions (SeSo) and Digital Development (DiDe) was EUR 21.4m (Evli EUR 23.6m) and EUR 8.5m (Evli EUR 8.8m), with sales growth of 1% and -1% respectively. SeSo’s development was affected by some project postponements and the slowdown in the construction market adding price competition in other areas. The ERP renewal project also continued to cause some challenges, but clearly less than in H1. The market situation in DiDe overall continues to be challenging but utilization rates were fairly good in Q3.

Expectations for a solid finish to 2023
Loihde kept its guidance for 2023 impact, implying expectations of a strong Q4 in terms of profitability. SeSo is expected to have a larger contribution given project delivery timings, but still requires good performance across the board. Following some revisions due to the Q3 results, our 2023 estimates remain more or less barely within the guidance. The guidance still appears challenging, but confidence appears quite high given the reiteration of the guidance at this point of the year. Our views for the upcoming year are largely intact, having slightly lowered our growth expectations given the continued market uncertainty along with recruitment challenges in some key growth areas. 

HOLD with a target price of EUR 13.0 (13.5)
With the minor downward revisions to our estimates, we adjust our target price to EUR 13.0 (13.5). Based on estimated coming year earnings capacity and peer multiples, current valuation levels still appears reasonable, and we retain our HOLD-rating.