Napatech - Short-term headwind, but ’21e could be strong

Lower Q4/H1 estimates following short-term headwinds 2021 could be transformative ’22e EV/sales of 3. 6x vs. high-growth peers at 4. 9x Lower Q4 and H1 estimates due to low short-term visibility Napatech has guided for Q4 revenues of DKK 43-63m, i.

e. a wide range. Following the uncertain short-term outlook with potential temporary slowdown due to COVID-19 and FX headwinds, we lower our Q4 revenue estimate to DKK 54m, i.

e. around the midpoint of the company guidance which corresponds to flat y-o-y growth. In addition, we remain cautious going into the new year and estimate y-o-y growth of 0% in Q1 and 5% in Q2.

Good underlying demand; 2021 could be transformative Despite temporary headwinds, Napatech is seeing positive underlying demand trends, with potential pent-up demand in H2 as investments that were stalled by COVID-19 make their return. Furthermore, the recently announced partnership with Lenovo, a tier-1 global server manufacturer, is a milestone for Napatech within virtualisation. Although no volumes have been committed and a successful deal is dependent on large customers of Lenovo adopting the product, the fact that Lenovo is marketing servers using Napatech’s SmartNIC in our view proves the strong value of its offering.

We also think that the Lenovo deal could open up a new market, i. e. high-volume customers that are not comfortable ordering directly from smaller suppliers such as Napatech, as well as similar business combinations with other vendors.

’22e EV/sales of 3. 6x vs. high-growth peers at 4.

9x On our estimates, Napatech is trading at a ’22e EV/sales of 3. 6x, which compares to international peers of 3. 3x and high-growth peers of 4.

9x. The implied Napatech share price range based on peer EV/sales in 2022e is NOK 8-24, with the upper end representing high-growth peers. Napatech is expected to grow +20% in 2022, but we see the potential for considerable acceleration in growth if the Lenovo deal proves successful.