Redeye updated its forecast and valuation following the Q3 report, which showed strong ARR growth (in constant currency) but somewhat softer topline growth. While the overall case remains intact, partly driven by the upcoming effects of the cost reduction program and the strong cash position, we now expect software revenue growth to be somewhat slower than initially anticipated. Our new Base case fair value is SEK22 (SEK26) per share.

Modelon

* Generates no profits and negative cash flow, potentially diluting shareholder value through discounted fundraising and increasing investment risk.
* Return on invested capital (ROIC) has not consistently exceeded the weighted average cost of capital (WACC) over the past three years.
* Operates in a competitive landscape with other major players like Dassault Systèmes, Siemens, and Ansys, potentially limiting market dominance.
* Uncertain long-term sustainability of competitive advantages, as the company's ability to maintain its edge for decades is not clearly established.

* Strong recurring revenue model with subscription-based services accounting for <60% of revenues, enhancing business stability and predictability.
* Well-positioned for growth with meaningful reinvestment opportunities, focusing on innovation and strategic expansion in product range and new markets.
* Successfully expanded into new geographic markets, demonstrating adaptability and growth potential across diverse locations.
* Operates in a market with secular tailwinds, expecting 10% CAGR growth to reach $13.5bn by 2026, supporting sustainable long-term growth.
* Diverse revenue base with no single customer, partner, or country dominating sales, mitigating risks associated with concentration.

* Operating margin (EBIT) is below 20% and is not consistently increasing, indicating potential profitability challenges.
* Weak historical growth, with stock price, revenue, and earnings growth below desired benchmarks.
* Lack of dividend payments or growth, missing opportunities to reward shareholders and signal financial strength.
* Significant increase in CAPEX to Sales ratio over the last year, potentially indicating overinvestment or inefficient capital allocation.

* Strong gross profit margin exceeding 40%, indicating profitable product mix and pricing power.
* Healthy short-term liquidity with current assets 1.5 times greater than current liabilities.
* Low debt levels relative to operating cash flow and free cash flow, suggesting good debt management.
* Efficient inventory and accounts receivable management, both below 20% of sales and their 5-year averages.
* Transparent financial reporting with low one-time charges relative to sales over the past five years.

* Lack of consistent, attractive returns on capital, with the company not yet achieving a consistent ROIC of at least 15%.
* The absence of a clear dividend policy potentially limits returns for income-focused investors.
* Insufficient gender diversity in leadership, falling short of the benchmark of one-third female representation on the board.
* Limited track record for assessing the new CEO's performance in delivering on promises and creating value, given the recent appointment.

* Strong leadership with clear long-term vision and strategy, demonstrated by the new CEO Jan Häglund's focus on customer needs and innovative solutions.
* Committed founder involvement, with five of six founders remaining active in management or board roles, holding a significant 29% stake through Noledom Holding AB.
* Effective governance structure with independent directors capable of challenging management, and a board that understands the value creation process and aligns with business strategy.
* Consistent communication focus on long-term business value, maintaining transparency and building trust with investors through clear, timely updates.
* Presence of controlling owners with long-term commitment, including Noledom Holding AB, Accendo Capital, and RoosGruppen, each holding over 20% of capital.

SEKm	2022	2023	2024e	2025e	2026e
Revenues	68.8	79.7	84.9	99.6	129.1
Revenue Growth	-0.1%	15.8%	6.6%	17.3%	29.6%
EBITDA	-63.8	-56.4	-53.3	-5.1	18.5
EBIT	-64.8	-57.6	-54.3	-6.0	17.3
EBIT Margin	-96.0%	-73.0%	-65.1%	-6.0%	13.5%
Net Income	-65.1	-55.9	-53.2	-6.0	13.7
EV/Sales	0.7	0.6	1.6	1.3	0.9
EV/EBIT	-0.7	-0.9	-2.4	-22.4	6.8

Q3 2024: Solid ARR growth

Focus on growth with costs tamed

Valuation drops amid reduced revenue projections

Key financials

Q3 2024: Recap