Napatech - Headwinds likely to continue in Q2

Q1 sales growth -4% y-o-y, growth to pick up in H2e Lower ’21e estimate, but lift ’23e sales by ~3% Peers point to share price of NOK 13-29 Low Q2 visibility, but growth should pick up in H2e Napatech delivered Q1 revenue of DKK 46.8m (-4% y-o-y). Adjusted for FX, the underlying growth was +4% y-o-y. The somewhat soft quarter can also be explained by lower OEM sales, which have been stalled due to COVID-19 as they require physical on-site installations. EBITDA was solid at DKK 8.8m (19% margin).

The company has a strong customer pipeline and now has several new partnerships that can contribute to further revenue growth in 2021+. We believe that we will continue to see headwinds in Q2 and expect to see growth start to accelerate in H2e. Lift ’23e sales estimates following upbeat CMD Napatech reiterated its 2021 guidance of DKK 210m-230m in sales.

However, due to the somewhat low visibility in the short term, we remain cautious and lower our ’21 sales estimates by 2% to DKK 214m. We expect sales to be back-end loaded towards H2e as 1) sales at the start of the year typically have a larger OEM share and OEM sales continue to be stalled due to COVID-19 and 2) FX headwinds. We leave our ’22e sales estimate largely unchanged, but lift our ’23e sales estimate by ~3%, corresponding to revenue growth of 28%.

This leave some upside to the company’s expectations of +30% growth from 2022 onwards. We continue to see 2021 as a potentially transformative year for Napatech, with both the Intel partnership and possibly the Lenovo deal turning out to be successful. Napatech aspires to reach USD 100m in sales by ’24e-25e and if its recently announced partnerships are successful, we believe the target should be achievable.

Peers point to share price of NOK 13-29 On our estimates, Napatech is trading at a ’22e EV/Sales of 4.2x and EV/EBIT of 31x, which compares to Nordic peers of ~2.5-3.8x in EV/Sales and 40-45x in EV/EBIT. The implied share price range based on peer EV/Sales....