Invisio: Positioned for another year of strong growth
Research Update
2024-05-10
07:16
Analyst Q&A
Closed
Hjalmar Ahlberg answered 2 questions.
Redeye updates on Invisio following its Q1-results which were in line with our expectations. The strong order book of SEK1bn and the upcoming deliveries of the recently announced Intercom orders suggests strong growth potential in the short-term while growing defence budgets supports the long-term outlook.
HA
JW
Hjalmar Ahlberg
John Westborg
Invisio’s Q1-results were in line with expectations with revenues of SEK308m and an EBITDA of SEK65m (we expected SEK331m and SEK69m, respectively). Gross margin was solid at 61% and opex developed as expected while the very strong order intake of SEK673m was supported by the Intercom order.
Invisio is poised to see another year of strong growth following the Intercom order and we forecast topline growth of 30% in 2024. Growth should be especially strong in Q2 and Q3 when the majority of the order is expected to be delivered, although gross margin will be lower-than-normal as the order also includes third-party radio devliveries.
We leave our estimates largely unchanged following the Q1-results which were in line with expectations while the outlook remains strong, both short-term and long-term. Our base case of SEK265 implies an EV/EBITDA multiple of 30x 2024E and 25X 2025E, while the company has traded at a historical average EV/EBITDA of c30x.
| SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
| Revenues | 775.4 | 1,238.5 | 1,609.7 | 1,656.9 | 1,905.4 |
| Revenue Growth | 30.8% | 59.7% | 30.0% | 2.9% | 15.0% |
| EBITDA | 112.7 | 301.4 | 376.7 | 481.0 | 597.8 |
| EBIT | 65.1 | 242.8 | 316.1 | 417.6 | 532.2 |
| EBIT Margin | 8.4% | 19.6% | 19.6% | 25.2% | 27.9% |
| Net Income | 44.3 | 178.3 | 233.7 | 313.2 | 399.2 |
| EV/Sales | 10.4 | 7.0 | 5.6 | 5.4 | 4.6 |
| EV/EBITDA | 71.4 | 28.7 | 24.1 | 18.5 | 14.6 |
| EV/EBIT | 124 | 35.7 | 28.7 | 21.3 | 16.4 |
Invisio reported revenue of SEK 308m and EBITDA of SEK65m which was largely in line with our expectations of SEK311m and SEK69m, respectively. Gross margin came in at 61.0% which was in line with our estimate and an increase from 57.4% in Q4 2023, albeit slightly lower than 62.5% in Q1 2023. Opex was also close to our forecast, coming in at SEK137.6m compared to our estimate of SEK136.2m. Order intake was strong as expected, and amounted to SEK673m, supported by the large Intercom and third-party radio order announce in March which in total was SEK465m (ow SEK230m was for Intercom and SEK235m was for third-party radios). The order book stood at SEK1bn at the end of the quarter and the company expects that 80% of the order book will be delivered within 12 months.
| Invisio: Results outcome | |||||||
| SEKm | Q1 23 | Q2 23 | Q3 23 | Q4 23 | Q1 24E | Q1 24A | Diff |
| Sales | 311 | 270 | 312 | 346 | 311 | 308 | -1% |
| EBITDA | 97 | 61 | 67 | 78 | 69 | 65 | -5% |
| EBIT | 84 | 45 | 51 | 62 | 54 | 50 | -6% |
| PTP | 84 | 38 | 55 | 66 | 54 | 51 | -5% |
| EPS (SEK) | 1.33 | 0.60 | 0.88 | 1.12 | 0.88 | 0.79 | -11% |
| Sales growth | 126.6% | 75.5% | 59.7% | 19.6% | 0.0% | -1.0% | n.a. |
| Gross margin | 62.5% | 60.5% | 61.3% | 57.4% | 61.0% | 61.0% | n.a. |
| EBITDA margin | 31.0% | 22.4% | 21.4% | 22.5% | 22.2% | 21.2% | n.a. |
| EBIT margin | 26.9% | 16.8% | 16.4% | 18.0% | 17.2% | 16.4% | n.a. |
| Source: Redeye Research |
Looking into the rest of 2024, Invisio has secured strong growth owing to the large Intercom order mentioned above. The majority of the order is expected to be delivered during 2024E, while it also includes a spare parts and maintenance package that will be deliver during 2025-26E. Looking into Q2 and Q3 2024E, we forecast topline of around SEK440m which implies YoY growth of 64% and QoQ growth of 44%, driven by deliveries of the Intercom order. Our estimate assumes around SEK300m of “normal” deliveries and around SEK130m-150m deliveries of the Intercom order. As around half of the Intercom order will consist of third-party radios with a gross margin below 10%, we anticipate a lower-than-usual gross margin, which we estimate to be around 51% in Q2 and Q3 2024. Looking into Q4 2024, we forecast a more normal gross margin and solid YoY growth driven by an expectation of a continued strong order intake in the coming quarters. Order intake should be supported by the general high market activity as well as additional orders for the Intercom and the new X7 headset which will se its first deliveries during Q2 2024.
Invisio: Order intake, revenue and EBITDA-margin Q1 2021 to Q4 2024E
With the Q1-results being close to our expectations and the outlook remaining strong, we have made limited changes to our estimates. We expect continued strong growth for the company in 2024 with topline growth of around 30%, driven by the large Intercom order. While we expect softer growth of just 3% in 2025E, this mainly comes on the back of tough comps. We continue to expect margin expansion in the coming years as opex should grow less than topline. We forecast that the EBITDA-margin will gradually increase from 23% in 2024 to 29% in 2025E and 31% in 2026E. The table below summarizes group key financials for 2020-26E.
| Invisio key financials 2020-26E | |||||||||||
| SEKm | 2020 | 2021 | 2022 | 2023 | Q1 24 | Q2 24E | Q3 24E | Q4 24E | 2024E | 2025E | 2026E |
| Revenue | 532 | 593 | 775 | 1,239 | 308 | 442 | 444 | 415 | 1,610 | 1,657 | 1,905 |
| Growth Y/Y (%) | 4% | 11% | 31% | 60% | -1% | 64% | 43% | 20% | 30% | 3% | 15% |
| Gross profit | 309 | 340 | 450 | 747 | 188 | 226 | 226 | 239 | 879 | 1,011 | 1,162 |
| Gross margin, % | 58% | 57% | 58% | 60% | 61% | 51% | 51% | 58% | 55% | 61% | 61% |
| EBITDA | 108 | 70 | 113 | 301 | 65 | 101 | 100 | 111 | 377 | 481 | 598 |
| EBITDA (%) | 20% | 12% | 15% | 24% | 21% | 23% | 22% | 27% | 23% | 29% | 31% |
| Total opex | -214 | -316 | -385 | -505 | -138 | -140 | -142 | -143 | -563 | -593 | -630 |
| EBIT | 96 | 25 | 65 | 243 | 50 | 86 | 85 | 95 | 316 | 418 | 532 |
| EBIT (%) | 18% | 4% | 8% | 20% | 16% | 19% | 19% | 23% | 20% | 25% | 28% |
| PTP | 85 | 23 | 62 | 242 | 50 | 86 | 85 | 95 | 315 | 418 | 532 |
| EPS, SEK | 1.4 | 0.3 | 1.0 | 3.9 | 0.8 | 1.4 | 1.4 | 1.6 | 5.1 | 6.9 | 8.8 |
| Source: Redeye Research |
We leave our valuation range unchanged where the base case stands at SEK265 while our bull case is SEK400 and the bear case SEK140. Our base case implies an EV/EBITDA of 31x on 2024E and 24x on 2025E forecasts, while the five-year average has been 30x NTM EV/EBITDA (range of 20-50x). At the current price of SEK206, the share trades at 25x 2024E EBITDA. The table below summarizes key assumptions for our valuation scenarios.
| Invisio: Fair Value Range | |||
| SEK | Bear Case | Base Case | Bull Case |
| Value per share | 140 | 265 | 400 |
| Revenue CAGR 2025-2029 | 11% | 16% | 19% |
| Revenue CAGR 2030-2039 | 5% | 8% | 9% |
| Growth Terminal | 2% | 2% | 2% |
| EBITDA-margin 2025-2039 | 27% | 32% | 36% |
| EBITDA Terminal | 25% | 30% | 35% |
| Source: Redeye Research | |||
Case
Market leader in niche market with high barriers of entry
Evidence
Strong market position and large market opportunity
Challenge
Unpredictable intake of larger orders
Valuation
Base case DCF supported by long growth trajectory
People: 5
Since 2014, Invisio has been demonstrating powerful, profitable growth after a rocky past in which the company had never before made a profit. Order inflow has clearly become more stable while average order value has increased. The management have therefore proven that the company is being steered in the right direction and that it was the right decision not to cut back on R&D during the loss years. The CEO has been with the company since 2006 and has important experience from previous executive roles at Ericsson. The options policy that covers all employees and the low employee turnover are also evidence of good management and good staff policies. Management insiders have significant equity holdings.
Business: 4
The prime value driver is increasing awareness of the massive costs of hearing damage. In-ear headsets are thus a market with a potential worth in the SEK billions, but it seems the big fish have thus far considered it too small a pond. The US Army is also the best imaginable reference customer and a springboard into other NATO countries. Awarded contracts also produce multi-year lock-in effects. Invisio's intercom product also has the potential to become a new growth driver while the acquisition of Racal has increased diversification. The combination of audiology expertise and more than ten years of sales to leading special forces give Invisio strong good competitive advantages.
Financials: 4
While Invisio’s earnings can be volatile on a quarterly basis, long term performance has been solid, albeit with temporary dips when the company has increase costs to invest for growth. The company’s capital-efficient business means that ROA and ROE will be high, and low fixed costs provide leverage to earnings, which suggests EBITDA margins around 30 percent in the medium term. Invisio’s higher volumes and business model have also resulted in economies of scale for the gross margin. Invisio has paid down all its debt and gradually built up the interest cover ratio. The company has stable net cash, especially considering the low requirements for investment and working capital. Defence budgets are also relatively stable and there are lock-in effects once contracts are awarded, which reduces the risks.
Disclosures and disclaimers