Invisio reported revenue of SEK553m and EBITDA of SEK115m which was above our forecasts of SEK442m and SEK101m, respectively. The strong topline growth of 105% was driven by the larger Intercom order received in March and includes third-party radios which generated sales of SEK164m in the quarter. The third-party radios have a lower gross margin of less than 10%, and as deliveries of third-party radios were higher than expected, the gross margin was lower than expected. However, excluding the third-party radios, the gross margin was 63.2%, which is at the high end of the historical average. Order intake was SEK245m and in line with our expectations of a level between SEK200m-300m. Total opex came in at SEK158m which was above our estimate of SEK140m, however, this includes one-off costs of SEK15m related to a cyber attack on Racal Accoustics, preparations for CSRD reporting and activities related to Invisio’s 25 year anniversary. Excluding the one-off costs, underlying opex was close to our expectations.

Looking forward, the company reiterates a positive outlook where it expects a high activity level in the market for many years to come. An example of the high market activity was the Eurosatory tradeshow in Paris in June, where Invisio commented that during most days there was a line of people interested in seeing product demonstrations. Invisio sees potential for increased military budgets to impact positively in late 2024 or in early 2025, and it further adds that customers increasingly prefer tried and tested solutions, which puts the company in a strong competitive position. On the back of the strong outlook, the company maintains a high inventory level which stood at SEK274m at the end of Q2 2024 compared to SEK252m in Q1 2024 and SEK197m in Q2 2023. The company highlights that it sees potential for orders with short lead times that can be delivered during the same quarter as they are ordered. Given the positive outlook, we expect the order intake to increase to a range of SEK300-400m in the coming quarters and support strong growth in 2025E (adjusted for the third-party radio order).

As highlighted ahead of the quarter, it was uncertain of how much of the deliveries of the large Intercom order that would come in Q2 or in Q3. It now looks like a majority of the order was delivered in Q2 while we had assumed a similar level in Q2 and Q3. As such, we have lowered our sales forecast for Q3 2024, while we leave our 2024E sales forecast largely unchanged. While opex in Q2 was close to our expectations, we have slightly increased our costs assumptions and overall our 2024-26E EBITDA estimates are lowered with c2%. The table below summarizes our updated forecasts for 2024-26E.

We leave our valuation range unchanged where the base case stands at SEK265 while our bull case is SEK400 and the bear case SEK140. While our base case implies that the share trades at a fair value, we see potential for the share to trade above our base case to reflect upside optionality from increased military budgets in the coming years. Our base case implies an EV/EBITDA of 32x on 2024E and 25x on 2025E forecasts, while the five-year average has been 30x NTM EV/EBITDA (range of 20-50x). The table below summarizes key assumptions for our valuation scenarios.