Solteq - Continuing profitability turnaround
Solteq reports Q3’24 results on Thursday, October 24th. We expect comparable sales to show slight y/y growth, alongside profitability improvements in both segments.
Profitability expected to accelerate…
Despite a minor decline in net sales of 1.5% y/y, Q2 marked a turning point for Solteq, delivering its first (barely) positive comparable operating result since Q2’22. Additionally, the 24-month extension of note maturities to October 2026 provided added financial flexibility, although higher coupon rates (increased from six to ten percent) will weigh on the bottom line. Heading into Q3, we expect profitability to accelerate, primarily driven by cost-saving measures across both business segments. While we expect slight sales growth y/y, the outlook remains uncertain due to the slower-than-expected recovery in market demand.
… and gradual return to growth track
We expect Q3 net sales to rise slightly to EUR 12.4m (Q3’23: EUR 12.2m), with EBIT improving to EUR 0.9m (Q3’23: EUR −0.8m). Despite persistent softness in customer demand within the larger Retail & Commerce segment, we anticipate flat or slight growth y/y and improved profitability as cost-saving initiatives take effect. In the Utilities segment, a y/y increase in net sales and profitability is expected, driven by operational efficiency improvements and reduced product development challenges. We expect the cost-saving measures implemented in both business segments to elevate the EBIT-margin into higher single digits in H2’24. While the growth outlook remains more uncertain, it is expected to gradually recover, and the pace will depend largely on new sales within the Utilities segment and the rebound in customer demand in the Retail & Commerce segment.
BUY with a target price of EUR 0.75
We retain our target price of EUR 0.75. Following a decline of over 15% in the share price since our Q2 company update, we have updated our rating to BUY, with in our view no recent significant changes in the outlook.