Vitec - Strong profitability for Vitec in Q2’21

Q2’21 EBITA of SEK 121m, +30. 9% vs. ABGSCe EBITA up by 12. 3-3.

4% for ‘21e-‘23e EV/EBITA 31-29x ‘21e-‘23e, excl. new M&A Q2 recurring sales of SEK 325m, +22% y-o-y (9% organic) Vitec reported net sales for Q2’21 of SEK 396m, +3. 5% vs.

ABGSCe; approximately 82. 1% of the revenues were recurring, -4. 8pp vs.

ABGSCe. Recurring revenues grew by 22% y-oy, of which 9% were organic. At the group level, this corresponds to total y-o-y growth of 23.

6%. Service and licence revenues were once again elevated due to recent acquisitions not having fully adjusted their business models according to Vitec’s strategy of favouring recurring revenues, which contributed to the profitability beat. Personnel costs were also lower than anticipated due to favourable seasonal effects in Norway.

Group EBITA was SEK 121m, +30. 9% vs. ABGSCe for a margin of 30.

7%. Ultimately, Vitec reported EPS after dilution of SEK 1. 82, +22.

0% y-o-y and +34. 7% vs. ABGSCe.

We raise EBITA by 12. 3-3. 4% for ‘21e-‘23e We raise our EBITA estimates for ’21-’23 by 12.

3-3. 4% on the back of the Q2’21 report and due to COVID-19 still creating temporary margin tailwinds due to less business travel and slower recruiting than normal. We estimate that Q3’21e will continue to see elevated margins due to the abforementioned factors as well as a favourable seasonal effect in Sweden in terms of personnel costs.

Looking at ‘22e and ‘23e, we forecast slightly lower margins (27-28% EBITA margins) due to further normalisation of the COVID-19 impact. Valuation ~10% above peer group In terms of valuation, Vitec is trading at a ‘21e-‘23e EV/EBITA of 31-29x, based on the current share price and our updated estimates but excluding any future M&A. This is approximately 10% above the median of our peer group, which consists of relevant roll-up peers.

Given the recurring nature of Vitec’s revenues, its above-peer margins and strong capital allocation track record, we would argue that this could be justified.