AVTECH’s results aligned with its preannouncement and were slightly below RRe (before the preannouncement). USDSEK had a negligible negative effect, decreasing by 2% Q/Q. We estimate that 50% of the SAS fleet is operational with ClearPath and expect sequential growth from the agreement. We expect 2024 to be an investment year for AVTECH and increase our OPEX slightly. However, we expect EBIT margins to stay at 33%, as seen in 2023. AVTECH has significant operating leverage, and a pronounced increase in sales would likely result in a higher-than-expected EBIT margin.

AVTECH’s pipeline of 1,400 aircraft is worth SEK27-45m on RRe, depending on if customers use ClearPath (cSEK33k/aircraft/year) or Aventus (cSEK20k/aircraft/year), totaling a potential SEK72m. We estimate incremental sales of SEK6.4m between 2023/2024e, suggesting a pipeline conversion of 18% at the mid-point. AVTECH has already signed SAS (c90 aircraft), worth SEK2.9m p.a., and Air Caraïbes and French bee (c18 aircraft), worth SEK0.3m. p.a. on RRe mid-point. Thus, our estimates imply one contract during 2024 at a 20% larger size than SAS (SEK3.5m), or 10% conversion, adjusted for already signed agreements. We believe this is reasonable based on AVTECH’s recent history.

AVTECH is currently trading at an EV/EBIT of 28.0x and an EV/S of 9.0x based on our 2024 estimates, both metrics above its historical valuation range. Considering the recent rise in share price, we believe the stock is approaching full valuation. However, the potential for modest pipeline conversion and the stability provided by existing contracts suggest an asymmetrical setup. These contracts are likely to underpin earnings for the next two to three years, offering a baseline level of financial performance. We reiterate our fair value range of SEK3.5-11.8 with a Base Case of SEK5.9.