Net Sales came in at SEK8.6m, 30%y/y, and in line with RRe of SEK8.2m (deviation 5%). New contracts primarily drove sales growth as USDSEK advanced only 3% q/q. EBITDA came in at SEK 4.0m, corresponding to an EBITDA margin of 47% (EBITDA SEK3.1m, EBITDA-margin 47% last year). EBITDA was ahead of our estimate of SEK3.2m (deviation 25%). OPEX was almost in line (deviation of 3%). CEO David Rytter has signalled increased investment in the organization, which is taking hold, adding two new employees y/y (22% increase). However, AVTECH remains a lean operation. We did not get any update on delayed payments from some AVTECH customers. Other current assets increased SEK2.4m q/q or 28% of net sales. AVTECH expect these customers to pay in Q3 2024. However, given the size, there is a slight cause for concern about what is driving the delayed payment and whether any customers are in financial distress.

AVTECH added Icelandic airline play during the quarter, and SAS is ramping up its use of AVTECH’s services. Norwegian also added the ClearPath’s new turbulence warning model. Additionally, several airlines completed tests during the quarter, and new airlines started testing, enabling pipeline conversion. 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), totalling a potential SEK72m. Our estimates imply that AVTECH will add about SEK2m (one carrier similar in size to SAS) to its sales before the end of the year.

Following the report, we keep our estimates and fair value range (SEK3.7-12.1, Base Case SEK6.2) intact. AVTECH trades at its median 3-year EV/EBIT NTM of 17x, and we believe the valuation represents reasonable odds of the pipeline conversion before year-end. We believe an asymmetrical setup remains with the potential for higher pipeline conversion rates, underpinned by existing contracts for the next two to three years, placing a floor on earnings.