AVTECH delivered another stable quarter, with net sales 3% below expectations due to currency headwinds, while EBITDA was only 1% below. Redeye adjusted its estimates but kept its fair value range. Following a sharp sell-off from the preannouncement (06/10/24), the current EV/EBIT NTM is at the lower end of its three-year range while the pipeline remains as strong as ever.

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Avtech Sweden

* High customer concentration, with 40-50% of revenue from a single client (Southwest), posing potential risks to revenue stability.
* Historical growth has been muted, creating uncertainty about achieving five-fold growth in a decade despite a promising pipeline.
* Limited ability to capture full value created for customers, potentially leaving money on the table.
* Operates in an industry with a relatively low average ROIC, which may impact long-term profitability potential.
* Potential regulatory challenges in the airline industry may indirectly affect the adoption rates of Avtech's products.

* Strong recurring revenue model with long-term contracts and low churn, indicating business stability and scalability.
* Benefiting from secular tailwinds in air travel and ESG considerations, positioning the company for sustained growth.
* Demonstrated ability to innovate and expand the product portfolio in collaboration with customers, enhancing value proposition.
* Highly scalable business model, with significant revenue growth achieved without proportional operating expense increases.
* Products contribute to environmental sustainability through fuel savings, aligning with the growing ESG focus in the industry.

* Lack of consistent earnings growth, with EPS growth not exceeding historical averages or maintaining stability over extended periods.
* Underperformance in Return on Equity (ROE) and Return on Assets (ROA) metrics compared to industry standards over the past five years.
* Limited dividend growth, failing to increase payouts by over 7% annually in the past three years or maintain consistent growth over the past decade.

* Strong profitability with gross profit margin exceeding 40% and operating margin above 20%, indicating pricing power and operational efficiency.
* Solid financial health with current assets 1.5 times greater than current liabilities, low debt levels, and strong interest coverage.
* Healthy dividend yield between 1 and 2.5 times the market median, well-covered by cash flows, suggesting a balanced approach to shareholder returns.

* Lack of transparency in executive compensation, with no disclosures about CEO pay, incentives, or sustainability-related performance metrics.
* Insufficient insider ownership, with management and insiders combined owning less than the recommended 10% stake in the company.
* Limited focus on capital allocation by the CEO, who primarily spends time on operations rather than strategic capital deployment.
* Weak commitment to sustainability reporting despite the environmentally friendly nature of the company's products.
* Unclear evaluation of the directors' business acumen and value creation process understanding, potentially impacting long-term strategic decision-making.

* Strong founder mentality with CEO David Rytter, who has deep industry knowledge and customer-focused product development approach.
* Lean organization promoting self-direction and accountability, enabling efficient operations with a small team serving multi-billion customers.
* Consistent delivery of promises, including customer pipeline conversion and a clear two-pronged strategy for product portfolio expansion and customer base growth.
* Transparent and timely investor communication, particularly during uncertain times like the pandemic, with a consistent focus on long-term business value.
* Experienced board of directors with a strong aviation background and long-term commitment to the company's success.

SEKm	2022	2023	2024e	2025e	2026e
Revenues	25.0	32.2	37.6	45.5	49.7
Revenue Growth	53.4%	28.8%	16.6%	21.3%	9.2%
EBITDA	8.9	13.4	14.1	19.7	22.6
EBIT	5.2	9.1	10.5	16.1	19.0
EBIT Margin	24.5%	33.1%	30.8%	38.5%	41.3%
Net Income	5.2	9.1	10.7	13.2	15.6
EV/Sales	7.1	7.3	6.4	5.0	4.4
EV/EBIT	29.0	22.0	20.9	13.1	10.6
P/E	31.7	24.5	23.3	18.8	15.9

Expectations were met, but EBITDA was down Q/Q and Y/Y due to organisational investments

Moderate growth assumptions

Valuation implies little EBIT growth for 2025e

Key financials

Actuals vs outcome