Solteq - Potential overshadowed by uncertainty

Q1 on the weaker side, comp. net sales declined 3.8% y/y
Solteq reported slightly weaker than expected Q1 results, driven largely by the lower than expected net sales in the Utilities segment. Comparable net sales declined by 3.8% y/y to EUR 13.6m (Evli EUR 14.2m) and the adj. EBIT amounted to EUR -0.2m (Evli EUR 0.2m). Net sales in Utilities declined by 7.5% y/y, to our understanding affected by fluctuations in the timing of project billables, while we had expected modest growth. With the cost base more or less in line with our estimates, the segment’s adj. EBIT fell short of our estimates by EUR 0.5m and was EUR -0.7m. 

Further cost savings measures to improve profitability
Solteq announced the initiation of an efficiency and cost-savings program to improve profitability in the Retail and Commerce segment’s Commerce & Data business unit and Group Administration. The annual savings are expected to be around EUR 3.5m. Our 2024E profitability estimates on an annual basis are close to unchanged given the anticipated costs relating to the cost savings measures and savings impact on H2 along with the weaker than expected Q1. Our coming year estimates are at large not notably changed. We had anticipated a need to adapt the cost base following the divestment in R&C in 2023, although not to such an extent and manner as now announced. The cost savings in R&C are offset in our estimates by slightly dimmed growth expectations, which in terms of profitability is particularly visible in the Utilities segment. 

HOLD with a target price of EUR 0.70 (0.85)
Solteq’s long-term potential remains overshadowed by the near-term risks relating to the turnaround and financing risks, with its bond maturing on Oct 1st. The cost savings measures, although improving profitability, adds to potential turbulence in the company. Valution remains attractive if the turnaround succeeds, but the obstacles ahead for now overshadow that potential.