Fortnox: Healthy growth, wealthy balance sheet - Introduce
Strong EBIT margin driven by operational leverage
Fortnox’s Q2 report showed few weak spots. Sales were SEK 170m, for y-o-y growth of +32%, driven by a solid customer intake of 13,000 q-o-q (vs. ABGSCe at 13,000) and an ARPC of SEK 169 (vs. SEK 154 in Q2’19). The ARPC growth was both due to robust progress in Fortnox Core (+31% y-o-y) as well as in Fortnox Finance (+40% y-o-y). EBIT rose 57% y-o-y and was SEK 62.5m (+6% vs. ABGSCe), driven by the higher sales together with good costs control (opex -1% q-o-q).
We lift our margin assumptions amid lower costs forecasts
We think that the strong Q2 numbers suggest good market conditions in Q2, where we note that 1) the default rates for SMEs has been low; 2) the number of newly started companies has been healthy; and 3) the demand for cloud-based solutions has been solid. Fortnox’s management agrees and says that the only real obstacle amid COVID-19 has been lower transaction-based revenues (which were flat q-o-q). We keep our sales estimates largely intact following Q2, but we lift ‘20e-‘22e EBIT by 2-6% on slightly lower opex assumptions.
New financial targets to be announced in H2’20
Interestingly, Fortnox stated that it is currently working on establishing a new business plan, in which it will set new financial targets for the next five-year period. The financial targets will be published in H2’20 and we are keen to see them. For ’19-’22e, we forecast a sales CAGR of 26% and an EBIT CAGR of 34%. Furthermore, we also look for increased M&A activity ahead, given the high potential in terms of sales synergies and Fortnox’s wealthy balance sheet (end-of-Q2 lease adj. net debt position of SEK -334m). The share has appreciated 72% YTD and is now trading at a 51x EV/EBIT on our new 2021 estimates.
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