Loihde - Strong security drives Q2 growth
Loihde reports its Q2 result on Thursday. While SeSo is expected to drive strong Q2 growth, the current market environment has continued weak and uncertain in DiDe. In addition to the soft utilization rates of DiDe, we expect SeSo’s ERP project to bring additional costs that together limit Q2 and 23E profitability.
Low utilization rates and additional costs limit profitability
With soft market news stemming from lower investment activity of private sector customers, we slightly downgraded DiDe’s growth and profitability, meanwhile, we increased SeSo’s growth estimates by expecting strong security demand to continue. We expect Q2 group net sales of EUR 34.2m with y/y growth of 15%. SeSo’s organic growth is further supported by inorganic expansion made in 2022. Meanwhile, we expect DiDe to decline. Continued issues in the ERP program and soft utilization rates translate to a decreased profitability expectation. We expect adj. EBITDA of EUR 2.2m (6.3% of net sales) and adj. EPS of EUR 0.06 in Q2’23.
Revised guidance with divestment and soft market
Several digital development peers have issued profit warnings or noted a weak market in digital development. Software development has been an area of soft performance with private customers withdrawing or postponing their new investments. To our understanding, the market has however slightly improved from that seen in Q1, but high uncertainty is still present. With lately issued profit warning and divested Sweden operations (see page 2), we have downgraded our 23E EBITDA (adj.) to EUR 10.2m, which is equivalent to a ~3% decline from what we earlier expected. With estimate revisions, our expected profitability is approx. on par with the previous year, but below the company’s guidance. This is explained by our weaker expectations of sales growth and softer OPEX development. With an uncertain market, we also lowered our estimates for 2024, which mainly reflects the decline in our target price.
No significant room for an upside in the share price
Loihde is valued at 23-24E EV/EBITDA and EV/EBIT (adj.) of 5-4x and 15-8x. We don’t see short-term upside potential in the share price with uncertainty concerning DiDe high. In addition, by measuring valuation with 23-24E P/E, Loihde trades with a notable premium to its peers. We retain our HOLD rating but lower TP to EUR 13.5 (15.0) with estimate revisions and uncertainty.
With soft market news stemming from lower investment activity of private sector customers, we slightly downgraded DiDe’s growth and profitability, meanwhile, we increased SeSo’s growth estimates by expecting strong security demand to continue. We expect Q2 group net sales of EUR 34.2m with y/y growth of 15%. SeSo’s organic growth is further supported by inorganic expansion made in 2022. Meanwhile, we expect DiDe to decline. Continued issues in the ERP program and soft utilization rates translate to a decreased profitability expectation. We expect adj. EBITDA of EUR 2.2m (6.3% of net sales) and adj. EPS of EUR 0.06 in Q2’23.
Revised guidance with divestment and soft market
Several digital development peers have issued profit warnings or noted a weak market in digital development. Software development has been an area of soft performance with private customers withdrawing or postponing their new investments. To our understanding, the market has however slightly improved from that seen in Q1, but high uncertainty is still present. With lately issued profit warning and divested Sweden operations (see page 2), we have downgraded our 23E EBITDA (adj.) to EUR 10.2m, which is equivalent to a ~3% decline from what we earlier expected. With estimate revisions, our expected profitability is approx. on par with the previous year, but below the company’s guidance. This is explained by our weaker expectations of sales growth and softer OPEX development. With an uncertain market, we also lowered our estimates for 2024, which mainly reflects the decline in our target price.
No significant room for an upside in the share price
Loihde is valued at 23-24E EV/EBITDA and EV/EBIT (adj.) of 5-4x and 15-8x. We don’t see short-term upside potential in the share price with uncertainty concerning DiDe high. In addition, by measuring valuation with 23-24E P/E, Loihde trades with a notable premium to its peers. We retain our HOLD rating but lower TP to EUR 13.5 (15.0) with estimate revisions and uncertainty.