Formpipe - We like its new ambitious financial targets

Sales flat y-o-y (-5% vs. ABGe), EBIT -2% vs. ABGSCe Expect cons. to lower its near-term margins, but raise LT Encouraging new financial targets Q4 results Sales of SEK 103m ( -5% vs ABGSCe an -4% vs cons.), unchanged from previous year.

EBITDA SEK 26m (-3% vs ABGSCe and -4% vs cons.). EBIT SEK 12.7m (-2% vs ABGSCe and -2% vs cons.). PTP SEK 14.1m (+16% vs ABGSCe and +18% vs cons.).

New ambitious (but reachable) financial targets Recurring revenue were SEK 67m (-3% vs. ABGSC), corresponding to y-o-y growth of 14%. Recurring revenue now constitute 65% of net sales (57% in Q4’20).

Non-recurring revenue declined 11% y-o-y (ABGSCe -10%). In conjunction with the report, management disclosed new financial targets. It aims at reaching 10% average annual revenue growth between 2021-2025.

By 2025 70% of total revenue will consist of recurring revenue. Operating margin should gradually increase to exceed 20% in 2025. And lastly, over time, at least 50% of net income is to be distributed as dividends.

The revenue growth in this period is mainly expected to be organic, but also with complementary strategic acquisitions. However, this will require increased costs, meaning that margins should be hurt in the near term. We are encouraged by the new financial targets and believe that this could translate the perception of FormPipe into a “growth company” from “only” being a strong flow generator (with relatively low growth rates).

We think that the goals are reachable, and remain believers that FPIP’s product, Lasernet, has a strong and long runway of growth. Valuation and estimate changes Based on FPIP’s new targets and Q4 results, consensus will likely have to reduce its 2021-2022 EBIT margin forecast, but lift its corresponding sales forecasts. On our unrevised estimates, FormPipe’s share is trading at 27x 2021 EV/EBIT and 4% FCF yield..