SSH Communications Security’s Q3’24 sales were below our estimates. Sales came in at EUR5.2m, a y/y increase of 1.5% vs our estimate of EUR6.1m. Subscription sales came in at EUR3m, License Sales were EUR0.1m, and Maintenance sales EUR2m. Subscriptions were 14% below our expectations and grew 0.3% compared to one year ago. EBITDA was EUR1m, corresponding to a 19% margin. According to the CEO, PrivX grew 15.6% compared to Q3 2023.

In our update after the Q1-24 we expected a sale ramp-up in H2. It is clear that this is taking longer than anticipated and we have to push the expected sales increase further into the future. How long this will take is difficult to estimate, as management does not know when customers will make their decisions either. We understand that the lack of sales growth is frustrating for both management and shareholders, especially since many industry peers are growing by double digits each quarter. We now anticipate full-year sales 2024e of EUR21m (22m), reflecting 5% growth with a EBITDA margin of 9%. For 2025e we anticipate sales growth of 24%.

We adjust our valuation range from EUR 1-3.4 to 0.8-2.9, with a Base Case of EUR1.6 (1.8) per share implying a 32% upside to Base Case. The stock is trading at EV/Sales of 1.8x next year, and EV/Ebitda 14x, roughly 60% discount to median peers.