EBIT was SEK6.1m (-7.5), corresponding to an EBIT margin of 5.9% (-6.7). While below the short-term 10% EBIT margin target, it somewhat beat our expectations of SEK 5.9 m and 5.5% and improved significantly relative to the soft Q1 2023. The negative effect seen in Q4 from some project deals (with fixed pricing) that turned out to have weak profitability affected Q1 as well, although to a lower degree. Sales fell by 9% y/y and was 5% below our expectations. Avensia saw some promising signs in the advisory and customer loyalty area during the quarter. These projects are often early in the cycle as they are relatively small and fast-deployed. Overall, we get the impression that a slight market uptick is more likely than a further decline, although the most likely scenario is an unchanged market. Management believes improving consumer purchasing power is necessary for a lasting rebound for both B2C and B2B.

At the beginning of April, Avensia announced the following financial targets: >10% annual organic sales growth over an economic cycle, >10% EBIT margin (short-term) and >15% EBIT margin for the long-term, given stronger market conditions. Overall, we find the targets ambitious yet reasonable. If Avensia combines 10% organic sales growth with a 15% EBIT margin, it would be among the top 5 performers in the Nordic IT Consulting space – currently trading at about ~1.5-2.0x sales NTM compared to Avensia’s ~0.7x. While those targets are far above Avensia’s current performance in a soft market, Avensia has a track record of strong organic growth – ~20% organic sales CAGR 2015-2023. Also, the EBIT margin was 9.4% in Q3 2023, not far from the short/mid-term >10% target.

We leave our Base Case at SEK12 (12) following a Q1 report roughly matching our forecast, a largely unchanged outlook and minor estimate revisions. Avensia is trading at ~20-40% discount to the peer average and median EV/EBIT on 2024-2025e. Thus, we see substantial upside potential, given that Avensia can continue to improve its margins, which aligns with our expectations.