Redeye comments on Binero IT’s H2-24 results. Sales were SEK212m in the second half of the year, representing a Y/Y growth of 387% due to the merger between Binero and Infrateq. Sales was better by 2% compmared to our estimate. EBITDA came in at SEK10.4m, which was lower than our estimate of SEK13.6m due to higher OPEX.

Net sales came in at SEK212m, up 387% y/y, slightly exceeding our estimate of SEK209m. Despite a weak underlying market, Binero managed to grow its revenue modestly. ARR stood at SEK282.4m, down 3.2% compared to H1-24 (SEK291.8m).

EBITDA came in at SEK10.4m, corresponding to an EBITDA margin of 4.9%, thus below our estimate of SEK13.6m. The main reason for the deviation is higher OPEX due to increased costs related to the merger between Binero and Infrateq. However, with a cost-saving program (announced in the H1-24 report) targeting SEK15m over a 12-month period, the company has already realized approximately SEK7.6m, leaving SEK7.4m to be achieved in the first half of the year.

For the full year, Binero IT sales were SEK416m, with a positive operating result of SEK4.2m (1% EBIT margin) for the full year 2024.

Summary and changes to Redeye's valuation

The report was roughly in line with expectations. Estimating sales and margins remains challenging when acquisitions and reverse mergers are in play. Yesterday evening, Binero IT announced new financial targets, aiming for organic growth of 10% (excluding acquisitions), an EBITDA margin of 12–14%, and a net debt-to-EBITDA ratio below 3x.

Binero Group

* Faces intense competition from global players like AWS and Microsoft Azure, limiting pricing power and market dominance.
* Shows challenges in consistently generating returns above cost of capital, particularly during recent restructuring phases.
* Exhibits some dependence on key individuals for strategy and operations, potentially increasing vulnerability to leadership changes.
* Lacks clear evidence of consistent price increases without customer attrition due to competitive pressures.
* Growth potential may be limited, as achieving a five-fold increase over a decade seems overly optimistic based on current growth rates.

* Strong recurring revenue model with growing ARR, particularly from cloud services and long-term contracts, enhancing business stability and predictability.
* Well-positioned in a niche market with focus on sustainable data centers, European regulatory compliance, and eco-friendly cloud solutions, providing visible competitive advantages.
* Benefits from secular tailwinds in sustainable and European-compliant cloud solutions, with a broad, diversified customer base spanning multiple industries.
* Proactively promotes environmental sustainability through initiatives like Fossil Free Data certification and energy recovery systems, aligning with global efforts for reduced carbon emissions.
* Collaborates closely with clients to develop tailored, innovative solutions, ensuring evolving needs are met while fostering customer loyalty.

* Operating margin (EBIT) below 20%, suggesting potential challenges in maintaining profitability.
* Lack of consistent revenue and earnings growth above industry averages over the past five years.
* Poor stock price performance since IPO, failing to achieve 10% compounded growth.
* Weak Operating Cash Flow (OCF) and Free Cash Flow (FCF) conversion rates, potentially signaling issues in converting profits to cash.

* Strong gross profit margin exceeding 40%, indicating profitable product mix and pricing power.
* Operating margin (EBIT) has increased for three consecutive years, suggesting improved cost management and operational efficiency.
* Healthy current ratio with current assets 1.5 times greater than current liabilities, demonstrating good short-term liquidity.
* Low debt levels relative to cash flow, with net debt less than two times operating cash flow and five times free cash flow.
* Sufficient cash reserves to cover expected cash burn for more than two years, indicating financial stability.

* Limited management tenure: While the CEO has relevant experience, the relatively short tenure of the leadership team at Binero IT may impact long-term stability and institutional knowledge.
* Unclear compensation structure: Lack of evidence linking executive compensation to share performance or sustainability goals could misalign incentives with long-term shareholder value.
* Absence of dividend policy: The company's focus on reinvestment rather than dividends may deter income-focused investors and limit shareholder returns in the short term.

* Strong leadership with clear vision: CEO Annika Rydström demonstrates a commitment to long-term growth, sustainability, and innovation, fostering a customer-centric organization.
* Transparent communication: Management openly addresses challenges and maintains consistent messaging about strategy and key metrics, building trust with stakeholders.
* Aligned ownership interests: Significant insider ownership, including management and board members, indicates strong commitment and alignment with shareholder interests.
* Board diversity and expertise: The board includes strong female representation and members with relevant industry experience, enhancing oversight and strategic guidance.
* Focus on sustainability: Binero IT's emphasis on eco-friendly data centers and sustainable practices aligns with growing market trends and long-term value creation.

Binero IT: Actual vs Estimate (MSEK)
	2024H2A	2024H2E	Diff vs Est.	Y/Y Growth
Net sales	212	209	2%	387%
Total opex	202	195	3%	-550%
EBITDA	10.4	13.6	-23%	-900%
EBIT	4.5	6.4	-30%	-156%
EBITDA Margin (%)	4.9%	6.5%	-2pp	-264%
EBIT Margin (%)	2.1%	3.1%	-1pp	-112%
Basic EPS	0.00	0.04	-100%	-100%
Source: Redeye Research & Company data