Solteq - Shifting course slowly but steadily

Some more positive signs in Q3
Solteq reported slightly upbeat Q3 results. Revenue grew 1.9% in comparable terms to EUR 12.2m (Evli EUR 12.6m) and the adj. EBIT amounted to EUR -0.7m (Evli EUR -1.2m). The performance of Retail & Commerce was on the positive side, growing slightly y/y in comparable terms while successful cost control saw profitability improve to rather decent figures, with the adj. EBITDA-% up to 11.3%. In Utilities, profitability remained weak, as was still to be expected. 

Return to profitability next year
Overall, the Q3 report did not notably change our views on Solteq’s equity story. We assess a slightly slower pick-up in growth in the near-term than previously anticipated. We have slightly revised our 2023e estimates based mainly on the Q3 results. Solteq concluded the change negotiations in the Utilities-segment and expects annual cost savings of EUR 3.8m, to be visible largely in 2024. We expect the growth potential in Utilities to start to materialize more visibly in the second half of 2024 and with the cost savings the profitability to improve substantially next year. In Retail & Commerce we now expect a slightly more modest growth given the market situation, in comparable terms in the lower to mid single-digits with margins improving slightly y/y. For Solteq, we expect revenue to decline 2.5% in 2024, impacted by the divestment this year, and the adj. EBIT-% to improve to 3.4% from -5.6% in 2023e.

HOLD with a target price of EUR 0.85 (0.90)
In light of our revised estimates, we lower our TP to EUR 0.85 (0.90). On our estimates, the valuation is stretched on 2024e figures, but the upside potential is significant on 2025e figures, should the Utilities-segment start to perform closer to its potential. That path is, however, still riddled with uncertainty.