Solteq - Toughest corrective actions now behind

Sales still on slight decline but profitability improved
Solteq’s comparable revenue declined by 1.5% y/y to EUR 13.4m, while the adj. EBIT improved considerably y/y to EUR 0.0m (Q2/23: EUR -2.0m). Solteq had provided preliminary figures for Q2 ahead of the earnings report and our estimates as such corresponded to the group figures. The Retail & Commerce segment saw a continued slight revenue decline to EUR to EUR 10.0m (Evli EUR 10.2m), with the adj. EBIT at EUR 0.4m (Q2/23: EUR -0.4m) vs. Evli EUR 0.3m. Revenue in the Utilities segment also saw a continued but clearly smaller (compared with Q1) y/y decline, with revenue at  EUR 3.4m (Evli EUR 3.2m). The adj. EBIT was EUR -0.4m (Q2/23: EUR -1.7m) vs. Evli EUR -0.3m.

Heading into much better profitability, growth uncertainty
The Q2 report and management comments further reinforced our view of a clear short-term profitability turnaround, while still limited positive news on revenue outlook dampened our view on the growth outlook, in light of which our we have raised our 2025e EBIT estimate by near 30% and lowered sales growth by ~2.5%p. With the cost savings and slight growth, Retail & Commerce could be poised to enter double-digit EBIT-margins next year. The Utilities segment is also heading there, but the high dependency on growth to achieve scalability strains visibility. With earlier problems largely tackled, near-term success in new sales could quite easily swing the direction. Solteq is very likely to achieve the planned extension of the maturity of its notes by 24 months and the expected increase in financial expenses, primarily through the coupon increasing from six to ten percent, will partially limit the bottom-line impact of reduced OPEX.

HOLD with a target price of EUR 0.75
Despite raised profitability estimates, current valuation levels in our view remain fair given turnaround uncertainty and absolute valuation levels. We retain our TP of EUR 0.75 and HOLD-rating.