Loihde - Year-end profitability has to be stronger
Loihde reported two-folded Q2 figures. Net sales came in strong with 15% growth, despite soft digital development sales. Profitability was weak, which leaves a lot to catch up in H2.
Sales growth was driven by good demand for security solutions
In total, Loihde group’s net sales grew by 15% y/y to EUR 34.2m. Demand for security solutions remained strong and acquisitions boosted the unit’s expansion further. SeSo grew by 25% y/y to EUR 24.1m. Our view is that Loihde’s consistent work on its continuing services has supported SeSo’s organic growth as well as profitability, despite a notable decline in locking services within the construction sector. Although Loihde succeeded in data, analytics, and AI sales during the quarter, the decrease in software development caused a 4% decline in DiDe’s revenue. In our view, the decline in software development was significant as well-succeeded data and analytics represent a notable share of DiDe’s business. DiDe’s net sales amounted to EUR 10.1m. Low utilization rates as well as additional costs from SeSo’s ERP project hurt Loihde’s profitability. Adj. EBITDA amounted to EUR 1.0m which was clearly below our expectations.
Outlook for SeSo remains solid, DiDe very uncertain
The outlook for SeSo’s H2 seems bright, although the impact of the acquisition of Turvakolmio will fade away in H2. We expect the digital development market to continue as soft through 2023. Loihde revised its DiDe’s sales estimate recently with the divestment of Sweden's operations and soft market. Geographical expansion sees a temporal stop with the company now trying to fine-tune its operations in home markets. Although the management is confident in reaching the profit target of EUR 10.3, with soft Q2 and elevated uncertainty in topline and cost development, our 23E adj. EBITDA lands slightly below the company’s target at EUR 10.1m.
HOLD with a target price of EUR 13.5
With only minor revisions made in our 2024 estimates, our TP remains at EUR 13.5. Loihde’s valuation seems slightly elevated with a 24E P/E of 14x, which is above its peers. Although 24E EV/EBIT of 8x sounds not expensive, considering the uncertainty in the markets and ongoing internal challenges, we retain our HOLD rating.
In total, Loihde group’s net sales grew by 15% y/y to EUR 34.2m. Demand for security solutions remained strong and acquisitions boosted the unit’s expansion further. SeSo grew by 25% y/y to EUR 24.1m. Our view is that Loihde’s consistent work on its continuing services has supported SeSo’s organic growth as well as profitability, despite a notable decline in locking services within the construction sector. Although Loihde succeeded in data, analytics, and AI sales during the quarter, the decrease in software development caused a 4% decline in DiDe’s revenue. In our view, the decline in software development was significant as well-succeeded data and analytics represent a notable share of DiDe’s business. DiDe’s net sales amounted to EUR 10.1m. Low utilization rates as well as additional costs from SeSo’s ERP project hurt Loihde’s profitability. Adj. EBITDA amounted to EUR 1.0m which was clearly below our expectations.
Outlook for SeSo remains solid, DiDe very uncertain
The outlook for SeSo’s H2 seems bright, although the impact of the acquisition of Turvakolmio will fade away in H2. We expect the digital development market to continue as soft through 2023. Loihde revised its DiDe’s sales estimate recently with the divestment of Sweden's operations and soft market. Geographical expansion sees a temporal stop with the company now trying to fine-tune its operations in home markets. Although the management is confident in reaching the profit target of EUR 10.3, with soft Q2 and elevated uncertainty in topline and cost development, our 23E adj. EBITDA lands slightly below the company’s target at EUR 10.1m.
HOLD with a target price of EUR 13.5
With only minor revisions made in our 2024 estimates, our TP remains at EUR 13.5. Loihde’s valuation seems slightly elevated with a 24E P/E of 14x, which is above its peers. Although 24E EV/EBIT of 8x sounds not expensive, considering the uncertainty in the markets and ongoing internal challenges, we retain our HOLD rating.