Solteq: Actions taken yielding results - Evli Research
Profitability clearly beat our estimates
Solteq reported solid Q2 results and profitability was clearly better than we had expected. Revenue grew 7.8% in comparable terms to EUR 15.1m (Evli EUR 14.6m) with both segments contributing nearly equally. The comp. EBIT amounted to EUR 1.5m, clearly above our estimates (Evli EUR 0.5m). The earnings improvement was attributable to previously taken streamlining actions and to some extent reduced travel expenses due to COVID-19. Solteq also reinstated a guidance for 2020, expecting comp. EBIT to grow significantly. The operating cash flow was also strong, at EUR 5.3m in H1 (2019: EUR 4.1m).
Coming year profitability estimates up by quite a bit
We have made larger estimates revisions post Q2, now expecting 2020 revenue of EUR 60.2m (prev 58.9m) and comp. EBIT of EUR 4.8m (prev. 2.4m). We have also raised our 2021-2022 comp. EBIT estimates by some 30% on average. The impact of the coronavirus has so far been limited and sales growth has been good during H1 following good earlier order intake. Our main concerns going forward relate to possible thinness in demand and as such expect lower relative growth figures. Solteq has seen good demand in for instance the energy sector, while areas more affected by the pandemic, such as the travel, restaurant and maritime sectors, saw lower sales in Q2.
BUY (HOLD) with a TP of EUR 1.65 (1.15)
Solteq has been burdened by high leverage and as such low earnings, which to a large extent will be reversed by the improved profitability and improved cash flows will reduce financial risk. With our revised estimates we adjust our TP to EUR 1.65 (1.15), implying a 2020e P/E of 16.5x. We adjust our rating to BUY (HOLD).