SSH Communications Security: Strong close of the year
Research Update
2025-02-16
07:28
Analyst Q&A
Closed
Fredrik Reuterhäll answered 2 questions.
Redeye provides an update following SSH's Q4 2024 report. Good order flow late in the quarter pushed sales up by 23% y/y to EUR6.8m, with a EBITDA margin of 24.9%. Operating cash flow follows the historical pattern and was strong, EUR2.7m. PrivX grew by 23% pushing Subscription growth 7%.
Fredrik Reuterhäll
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SSH Communications Security’s Q4-24 sales were above our estimates. Sales came in at EUR6.8m, a y/y increase of 23% vs our estimate of EUR6.5m. Subscription sales came in at EUR3.1m, License Sales were EUR1.4m, and Maintenance sales EUR2m. Subscriptions were 7% below our expectations and grew 7% compared to one year ago. EBITDA was EUR1.7m, corresponding to a 25% margin. According to the CEO, PrivX grew 23% compared to Q4 2023.
SSH operates in multiple markets with a diverse range of products, and we believe the positive trend seen at the end of 2024 will continue into 2025. However, we are making small adjustments of our full-year sales forecast and expect sales of EUR 25 million, reflecting an estimated revenue growth of 12% for the year. We anticipate improved profitability, with an expected EBITDA margin of 16%—a 3 percentage point increase—driven by the cost-efficiency measures implemented over the past year now beginning to yield results.
We adjust our valuation upward by 9% from 0.8-2.9 to EUR0.8-3.2, with a new Base Case of EUR1.8 per share, implying a 50% upside to Base Case. The stock is trading at EV/Sales of 1.8x based on Redey estimates next year. The EV/EBITDA stands at11.8x, roughly 80% discount to median peers.
| Key Financials | |||||
|---|---|---|---|---|---|
| EURm | 2023 | 2024 | 2025e | 2026e | 2027e |
| Total Revenue | 20.4 | 22.4 | 25.0 | 29.4 | 35.0 |
| Revenue Growth | 5.8% | 9.8% | 11.9% | 17.4% | 19.1% |
| EBITDA | 1.8 | 3.4 | 3.9 | 5.0 | 6.0 |
| EBITDA Margin | 8.8% | 15.2% | 15.6% | 17.0% | 17.0% |
| Net Income | -2.1 | -0.68 | 0.37 | 1.2 | 2.4 |
| EV/Sales | 2.6 | 1.8 | 1.8 | 1.5 | 1.2 |
| EV/EBITDA | 29.7 | 12.1 | 11.8 | 8.9 | 7.1 |
Case
Profitable growth with subscription based business model
SSH Communications Security offers a broad range of its own-developed cybersecurity products in three areas: Secure business communication, Secure access and secret management, and Secure file transfer and encryption. We forecast a 2025e–2029e sales CAGR of 21% and an average EBITDA margin of 15%. This will primarily be driven by (1) scaling current deployments with existing customers, (2) engaging in cross-selling to the installed base, and (3) winning additional high-value contracts with partners.
Evidence
Certifications and acquisitions
PrivX is a key product in the Secure Access and Secret Management category of SSH's Zero Trust solution portfolio. In November 2023, SSH expanded its offerings with the introduction of Secure Messaging, a new addition to the Secure Business platform. This modern, real-time messaging solution enhances SSH's Zero Trust Suite by providing robust, secure communication capabilities. Additionally, the Secure File Transfer & Encryption family, featuring the reputable Tectia and NQX technologies, forms a part of SSH's trusted solutions. SSH continues to innovate and expand its range of products in the cybersecurity domain.
Supportive Analysis
According to Quince Market Insights, cybersecurity will grow at a 13% CAGR in the years ahead (2020-2028e). The secular trends underpinning this growth include (a) the shift to the cloud, (b) increased focus on digital transformation initiatives in the wake of the coronavirus pandemic, (c) material security vulnerabilities due to increasingly complex hybrid IT environments, and (d) heavier governance and regulatory requirements.
Challenge
Competition
The rapid cybersecurity market growth (particularly in the pockets where SSH has a meaningful presence) attracts competitors. Moreover, the shift to cloud infrastructures brings adjacent markets closer – for instance, (1) Privileged Access Management and (2) Identity and Access Management. This means heightened competition from small innovative players and leading vendors in adjacent markets.
Foreign government contracts
We assess that SSH is in pole-position to win significant government contracts in Finland. However, this is more challenging abroad – most countries have domestic vendors and local certifications/regulations. We understand that a Finnish NATO membership would facilitate government contracts abroad (at least to member countries).
Valuation
Growth outlook justifies high near-term multiples
Our DCF analysis indicates a base case of EUR1.8 per share (bull: EUR3.4; bear: EUR1) based on a 34% sales CAGR during our forecast period (2024e–2029e) with EBITDA margin reaching 12% 2025E . Our base case translates into EV/Sales and EV/EBITDA multiples of about 1.9x and 16x in 2025e, respectively.
Disclosures and disclaimers
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