SSH - New CEO takes the realm in exceptional times

SSH’s Q1 report was in line with our expectations and we have not made any material changes to our estimates based on the report. We continue to see growth as main value driver and, as noted previously, we see SSH’s limited growth investment capacity as main strategic obstacle. We maintain our TP of 0.70€, our recommendation is SELL (prev. HOLD).

Q1 in line, more transparency to come in reporting

SSH’s Q1 net sales were 3.1 MEUR (3.1 MEUR Evli), an increase of 16% y/y on relatively low comparison figures, mainly driven by strong license sales and supported by growth in subscription revenue. Software fees were 0.9 MEUR (0.8 MEUR Evli), professional services were 0.0 MEUR (0.1 MEUR Evli), and recurring revenue was 2.1 MEUR (2.2 MEUR Evli). Q1 operating loss was –0.6 MEUR (vs. -0.5 MEUR Evli). The report did not provide materially new information that would affect our estimates at present, but SSH did provide a more transparent and candid overview into its result and operations than previously. SSH plans on introducing monthly recurring revenue (MRR) figures in coming quarters. According to SSH, MRR was approximately 1 MEUR in December (reported FY’19 recurring revenue 8.6 MEUR).

Newly appointed CEO to update strategy in June

SSH’s new CEO, Mr. Teemu Tunkelo started in end of March. Mr. Tunkelo has held various global management and technology leadership roles in companies such as Voith, Siemens, ABB, Invensys, and Compaq. According to the CEO, preliminary guidelines for SSH’s new strategy can be expected in June. He acknowledged the need for further investments into go-to-market and talked about the potential in being first mover in cloud PAM (PrivX) and IoT applications. The COVID-19 outbreak has not had a significant impact during the first quarter, but SSH has seen some project delays and it is still too early to assess the full business impact of the pandemic. As such, SSH’s cash position is good (11.7 MEUR Q1’20) and share of recurring revenue around 60%, which should help SSH weather the storm. SSH is reviewing options for further funding for product development, as well as options for its 12 MEUR hybrid debt. Negotiations regarding the hybrid have however stalled due to the pandemic. The hybrid debt’s interest rate increased from 7.5% to 11.5 % as of March 30th. Under the current circumstances the hybrid is valuable despite the increase in financial expenses.

Estimates unchanged, target price of 0.70€ maintained

We have not made any changes to our estimates based on the report and we note that SSH is in a good position to ride out the corona pandemic. After the share price rally yesterday, current valuation looks challenging given sales growth uncertainty. On our estimates, SSH is trading at 2020-21e EV/Sales multiples of 2.8x and 2.4x, which is, as previously noted, clearly below the cyber security sector and could prompt SSH to become an acquisition target of larger players wanting to enter the space or a consolidation play. However, as a standalone business, we’d like to see the results of SSH’s strategy materializing somewhat in the growth figures in order to justify higher valuation multiples.We maintain our TP of 0.70€, with SELL recommendation (prev. HOLD). Our target price implies an EV/Sales multiple of 2.2x on our ‘20E estimate, slightly below Nordic software peers, which we see as warranted given weaker growth and profitability metrics and the uncertainty to our estimates.

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