Litium - Long-term investments pressure Q4’20
Q4 ARR SEK 51m, -4. 2% vs. ABGSC, +23% y-o-y Estimate drivers: new cost base, H1 COVID-19 pressure Fair value range SEK 17-38 (19-41) per share Q4 ARR growth in line, but costs drive estimate miss Litium reported Q4 ARR of SEK 51m, -4. 2% vs.
ABGSCe, for y-o-y growth of 23. 1%. Many of Litium’s customers have experienced a very strong Q4, with e-commerce shopping being the preferred choice as COVID-19 inhibited physical retailing.
This does not, however, immediately translate into revenues for Litium, as the business model is driven by new customer intake with relatively long sales cycles. Reported operational costs were SEK -19m, vs. ABGSCe at SEK -16m, as Litium has increased investments into product development and expanded the number of FTEs, mainly within sales and marketing.
The operational costs also include some non-recurring costs associated with Litium switching to Nasdaq First North from Spotlight Stock Market. This yielded reported EBIT of SEK -4m vs. ABGSCe at SEK 0m.
Long-term investments drive ‘21e-‘22e estimate changes The cost-base increased faster than we had anticipated in Q4, yet we think that the investments will provide greater mid- to long-term growth for Litium, aided by a larger sales force and implementation partner base. However, adjusting our cost assumptions for ‘21e drives relatively large negative estimate revisions, and we now forecast Litium turning a small EBIT profit in ‘22e. In terms of growth in ‘21e, we think that new customer intake will stay under pressure in H1’21e, as retailers delay making new large investments into e-commerce.
We believe that this should recover in H2’21e, when we factor in growth picking up once again. We note that there is a lag between improvement in customer investment sentiment and Litium’s ability to capitalize due to quite long sales cycles. Fair value SEK 17-38 per share, EV/sales 6.
4-3. 8x ‘21e-‘23e On the back of our estimate changes we adjust our fair value range to SEK 17-38 (19-41) pe.
