Solteq - Headwinds grow stronger

Second profit warning for 2022
Solteq issued its second profit warning this year. With the new guidance Solteq expects group revenue to stay at the same level as in the previous year (prev. grow) and operating profit to be negative (prev. weaken). A key item in the downgrade is the write-off of product development investments made into the Solteq Robotics business, resulting in a one-off impact of approx. EUR 4.4m in the third quarter off 2022. Product development costs of Solteq Utilities have also continued to affect the business and project and service delivery costs of Solteq Utilities have increased. The revenue and profitability of the Solteq Digital segment have also weakened.

Some challenges across the board
Solteq had issued a profit warning in May, largely relating to challenges in the Utilities business. The challenges relate to productization of the solutions and performance was hampered by resourcing challenges relating to deliveries and customer project fixes. The previous guidance put quite some catch-up pressure on operational performance in H2/2022 after the weak Q2 results. Those risks appear to have materialized and with Solteq Digital also seeing some continued weakness, the overall market uncertainties may be starting to show. The Solteq Robotics business has seen commercialization challenges due to the pandemic and we have not emphasized any potential in our estimates. The write-off is still notably negative given previous fairly upbeat comments.

HOLD (BUY) with a target price of EUR 1.5 (2.7).
On our revised estimates, excl. the one-offs, valuation on current expected current year performance is quite stretched. Uncertainty is clearly elevated and overshadows coming years earnings improvement potential. We downgrade our rating to HOLD (BUY) with a target price of EUR 1.5 (2.7).