Siili Solutions: Case remains despite temporary hit in Auto - SEB
Q2 sales to decline slightly on temporary squeeze on Automotive customers
We expect Siili’s H1 sales to increase by 4% to EUR 42.3m but decline 3% in Q2. Our H1 EBITA estimate is EUR 2.6m. We find that Siili Core and VALA Group have performed relatively well. However, we think the Q2 sales decline owes mainly to Siili Auto, where we believe customers have safeguarded their cash flow in the time of uncertainty. However, based on the recent signs from the automotive sector sales, we believe the negative impact will be temporary and the demand should revive towards the year-end. Therefore, in Q2 our focus will be on management’s comments around the client sector’s recovery.
Structural demand for digital IT services remains strong
Siili’s close peer Gofore showed strong growth of 10% in Q2, which shows that the structural demand for digital IT services remains high even during the COVID-19 pandemic. Apart from certain client verticals, we expect that it has not been as bad for Siili either as the company serves customers in their business-critical projects. Looking at the COVID-19 impact in the medium to long-term horizon we expect the demand for digital services to increase as companies increase their digital capabilities to remote working and new customer interaction.
Indicative fair value range of EUR 11-13
Siili continues to trade at a discount to the Nordic small IT service companies. Furthermore, our DCF suggests clear upside potential in the valuation. We finetune our fair value range to EUR 11-13 (from EUR 11-12).