Solteq - Cautious optimism amid uncertainty

Q4 of lesser interest, focus on near-term outlook
Solteq reports its Q4 results on February 15th. Bottom-line figures are expected to be clearly negative due to write-offs made to product development investments after a change in practice in activating costs. We expect the adj. EBIT to be negative, at EUR -0.8m, as the cost savings from previously taken measures will not yet be clearly visible, along with some operative softness. We expect a net sales decline of -13.6% to EUR 14.6m due to the divestment in 2023, which on our estimates should translate into lower single-digit organic growth. With the weaker financial performance and the company’s outstanding bond (nominal value EUR 23m) maturing in October, we expect no dividends to be paid. On our estimates, we expect the guidance for 2024 to reflect a decline in net sales (organic growth) and positive EBIT. Our operative estimates remain intact ahead of Q4.

Expecting profitability turnaround in 2024
2024 is expected to be a turnaround year for Solteq especially in terms of profitability. With the cost savings measures taken in 2023, the company expects annual savings of EUR 3.8m, the majority of which should show in 2024. The growth outlook is still somewhat shaky, but we remain carefully optimistic for both segments. Growth in Retail & Commerce has been affected by the market weakness and we expect this to continue but ease going into 2024. The outlook for Utilities based on market conditions remains favourable, but with the product-related challenges faced in 2023 and cost savings measures taken, we anticipate a slower start to 2024. 

HOLD with a target price of EUR 0.85
With our coming year estimates intact, we retain our target price of EUR 0.85 and HOLD-rating. Valuation is on the higher side on our 2024e estimates and near-term uncertainty elevated, while the long-term outlook remains favourable.