Solteq - Long road to healthy profitability ahead

Slightly better than expected Q1 aided by good cost control 
Solteq reported Q1 results that were slightly better than anticipated. Revenue was in line with our estimates at EUR 16.9m (Evli EUR 17.1m) while the adj. operating profit of EUR 0.1m beat our cautious estimate of EUR -0.5m. In terms of segment performance, Retail & Commerce saw healthy and better than expected profitability despite the anticipated y/y revenue decline. The good profitability level was according to the company driven by an improved cost control. The Utilities-segment performed quite as expected, still clearly loss making following earlier product development challenges. Solteq also issued a guidance for 2023, expecting revenue to amount to EUR 60-62m and operating profit (excl. divestment profit recognition) to be slightly negative.  

Weaker in the short-term, long-term potential intact
The 2023 guidance was quite as expected, although our EBIT (excl. divestment profit recognition) estimate pre-Q1 was slightly positive. With Q1 stronger than we anticipated profitability-wise, we assume the anticipated burden of overhead expenses on Retail & Commerce in the short-term to be larger than we estimated. We have lowered our 2023 estimates slightly to fit the guidance but the revisions are in our view rather trivial. The investment story narrative continues to focus on 2024->, where the key success factor remains in the recovery and scalability of the Utilities-segment, and also to a lesser extent being able to adapt overhead expenses to the new company size. 

HOLD with a target price of EUR 1.3
With no material changes to our estimates or views, we retain our HOLD-rating and target price of EUR 1.3. Valuation remains stretched in the near-term, but now with the stronger balance sheet and scalability factors the long-term potential remains significant.