Redeye retains its positive view of Avensia following a Q3 report matching our forecasts. While the somewhat more cautious outlook is negative, Avensia continues to do well in the soft market. We keep our Base Case and forecasts.

Avensia

* Limited growth potential, not expected to achieve five-fold growth in a decade, with a modest 10% annual organic sales growth target.
* Lack of clear, sustainable competitive advantages typical in the IT consulting industry, heavily dependent on personnel.
* High concentration of sales in Sweden and reliance on specific e-commerce platforms (Optimizely and Commercetools) indicates a lack of revenue diversification.
* No significant reinvestment opportunities or plans for new product launches or market expansions beyond current strategy.

* Strong recurring revenue base with 80-90% of sales coming from current customers, indicating customer loyalty and business stability.
* Asset-light business model allows for scalable growth without expensive reinvestment, typical of IT consulting firms.
* Benefits from secular e-commerce tailwinds and operates in a high-ROIC industry with limited direct competition in its niche.
* Demonstrates pricing power and ability to increase prices above inflation without losing customers.
* Proactively promotes environmental sustainability and maintains positive relationships with customers and employees.

* Return on Equity (ROE) and Return on Assets (ROA) underperforming, indicating possible inefficiencies in capital utilization.
* Lack of consistent long-term earnings growth, with EPS growth below historical averages and not consistently above 10% over five years.
* Absence of consistent dividend increases over the past 10 years, suggesting potential instability in long-term shareholder returns.

* Strong gross profit margin exceeding 40%, indicating profitable product mix and pricing power.
* Revenue growth consistently above industry average over the last five years, signaling market share gains and competitive strength.
* Healthy debt management with Net Debt less than two times Operating Cash Flow and five times Free Cash Flow.
* Solid interest coverage ratio, with earnings (EBIT) covering interest on debt more than five times.
* Attractive dividend yield between 1-2.5 times market median, with recent dividend growth exceeding 7% annually over the past three years.

* Concentrated management ownership, with CEO holding a significant portion of management's 7% stake, potentially leading to an imbalance in decision-making influence.
* Less than 50% of board members have substantial holdings in Avensia, which may impact their alignment with shareholder interests.
* Limited track record in delivering on promises, as financial targets were only recently announced, making it difficult to assess management's execution capability over time.

* Strong founder-led leadership with CEO Robin Gustafsson's deep industry knowledge and long-term commitment, driving Avensia's growth and strategic focus on e-commerce solutions.
* Lean, decentralized organization with a management team averaging over five years tenure, promoting accountability and adaptability in a rapidly evolving industry.
* Consistent communication strategy focusing on long-term value creation, with transparent reporting and candid discussions about both successes and challenges.
* Significant insider ownership, with management and board members holding about 30% of capital, aligning their interests with shareholders and demonstrating confidence in the company's future.
* Board of directors with relevant industry experience and entrepreneurial backgrounds, well-positioned to guide Avensia's strategic direction and value creation process.

SEKm	2023	2024e	2025e	2026e	2027e
Revenues	412.4	418.5	441.1	469.3	491.4
Revenue Growth	-4.9%	1.5%	5.4%	6.4%	4.7%
EBITDA	12.3	52.1	59.6	62.4	64.8
EBIT	-3.4	34.2	43.8	48.1	52.8
EBIT Margin	-0.8%	8.1%	10.0%	10.3%	10.8%
Net Income	-4.8	24.9	34.8	38.2	42.0
EV/Revenue	0.8	0.6	0.5	0.4	0.3
EV/EBIT	-99.3	7.7	4.9	3.9	3.1

Solid Performance in Soft Market

More Cautious Outlook

Base Case Unchanged at SEK14 (14)

Key financials

Review of Q3 2024