Redeye states the report was 2% higher in sales while higher OPEX weighted on the EBITDA and EBIT resulted in 21% and 26% miss, respectively. After a tumultuous Q2 2024 report, which hit the stock hard, InfraCom sees a slight positive outlook. Additionally, with a renegotiated credit facility, InfraCom has excess liquidity and is confident it can execute acquisitions again. Redeye expects to make minor adjustments to its Net Sales and OPEX estimates and expects a relief rally in the share.

Net Sales came in at SEK 205m, 6% y/y, 2% ahead of our estimated SEK 201m. EBITDA came in at SEK 29m, corresponding to an EBITDA margin of 14% (EBITDA SEK 35m, EBITDA-margin 18% last year). Both EBITDA and EBIT are affected by restructuring costs of SEK2.4m. However, adjusting for this, both metrics were below our expectations. The main reason is higher OPEX than we anticipated.

Following the Q2 2024 report, where the CEO was candid about the challenges, we interpret the Q3 2024 report as positive, with the CEO having confidence that the integration and restructuring are moving in the right direction. Additionally, with the renegotiated credit facility, InfraCom is positive towards future acquisitions. Following the report, we expect to make minor changes to our net sales and OPEX estimates. Although EBITDA was 21% below expectations, we would not be surprised to see a “relief rally” between 5-10%.

Infracom Group

* Limited organic growth opportunities, with most growth coming from acquisitions rather than expanding into new geographic markets.
* Core market shows little to no organic growth, lacking strong secular tailwinds to support long-term expansion.
* Heavy reliance on a single main revenue base, contributing well above 50% to overall revenue, indicating a lack of revenue diversification.
* Dependence on key individuals, particularly CEO and founder Bo Kjellberg, for operational success, posing a potential risk to long-term stability.
* Difficulty in assessing pricing power due to revenue growth primarily driven by acquisitions, with core business estimated to be declining by 1-2% annually.

* Strong recurring revenue model with subscription-based income, enhancing business stability and predictability.
* Asset-light business model with low CAPEX requirements (around 1% of revenue), enabling efficient scaling and better cash generation.
* Sticky products and services in telecom and datacom, providing a durable competitive advantage likely to last for decades.
* Consistently generates returns on invested capital (ROIC) exceeding the weighted average cost of capital (WACC), indicating value creation and a sustainable advantage.
* Operates in a mature market with minimal regulatory interference and limited cyclical dependencies, contributing to operational stability.

* Operating margin below 20% and not consistently increasing, potentially indicating challenges in cost management or pricing power.
* Return on Equity (ROE) below 20% for the last five years, suggesting room for improvement in capital efficiency.
* Lack of consistent earnings growth, with EPS growth not exceeding historical averages or maintaining stability over extended periods.
* High Goodwill to Assets ratio compared to industry average, potentially indicating reliance on acquisitions and increased vulnerability to impairments.
* Limited dividend growth, failing to increase dividends by over 7% annually in recent years or consistently over the past decade.

* Strong profitability with gross profit margin exceeding 40% and Return on Assets outperforming industry average, indicating efficient operations and competitive advantage.
* Solid financial health with Net Debt less than five times Free Cash Flow and interest coverage ratio above five, suggesting good debt management and financial stability.
* Excellent earnings quality demonstrated by efficient inventory and accounts receivable management, low one-time charges, and high Operating Cash Flow and Free Cash Flow conversion rates.
* Attractive dividend yield between 1 and 2.5 times market median, well-covered by cash flows, indicating commitment to shareholder returns without compromising financial health.

* Limited gender diversity: Only one-fifth of the board consists of females, falling short of recommended diversity standards for effective corporate governance.
* Uncertain communication consistency: There's uncertainty about whether the company presents the same story and key metrics over time, which could affect investor trust.
* Potential overreliance on founder: With the CEO being the largest shareholder and long-standing leader, there may be risks associated with over-dependence on a single individual.

* Strong founder involvement: CEO Bo Kjellberg, who founded the company in 1999, remains actively engaged, potentially fostering a strong corporate culture and long-term focus.
* Significant insider ownership: The CEO owns over 50% of the company, and other board members are among top shareholders, aligning management interests with those of shareholders.
* Experienced leadership: The CEO has extensive experience in IT cloud solutions and a track record of profitable acquisitions, indicating deep industry knowledge.
* Consistent dividend growth: The company has shown a pattern of growing dividends, suggesting financial stability and commitment to shareholder returns.