Formpipe - Short-term margin contraction, but LT strength
Sales -5% vs. ABGSCe, EBIT -2% vs. ABGSCe Lowered ‘21e-‘22e EBIT margin due to increased costs 13x 2025e EV/EBIT, 6% FCF yield Flat sales y-o-y, but Private reported +17% growth FormPipe achieved Q4 sales of SEK 103m (-5% vs. ABGSCe and 0% y-o-y).
We think that, primarily, the deviation primarily stemmed from lower than expected M&A contribution from EFS (not disclosed), as FPIP has changed the EFS business model from previously selling traditional licenses into SaaS revenue, which affects the firm’s short-term financials. EBIT was SEK 12.7m (-2% vs. ABGSCe) for a margin of 12.3%, down 17% y-o-y amid relatively challenging comps.
We note that Public SE & Public DK saw y-o-y growth of -3% and -10%, respectively, while Private grew 17%. Overall, we think that FormPipe delivered solid Q4 results. However, what was more exciting was the company’s new financial target, in which it now seeks to achieve 10% sales growth per year for 2021-2025, and 20% EBIT margin by 2025.
The sales increase should mainly be organic, and is attributable to strong growth prospects for its Lasernet product (which is an ERP system add-on, mainly for Microsoft Dynamics and Temenos). No fear of margin contraction in 2021e To reach it targets, FormPipe is required to increase its headcount, meaning the company must have more people that work in even closer collaboration with its partners. This will hurt its 2021 EBIT margin.
Given Lasernet’s recent growth trajectory ( 12% annual growth for 2016-2020), we think that its forward-leaning strategy makes a lot of sense. We increase our costs assumptions for 2021-2022e, resulting in a 41-21% cut on our 2021-2022e EBIT. Our expectations beyond 2022e, however, have been raised substantially on the back of the new financial targets.
Expect margin improvements from 2022e and beyond We forecast 2025e sales of SEK 610m (9% ’20-‘25e CAGR). Given FormPipe’s scalable business model, where the share of low-margin revenues (i.e. delivery sales) conti....