Redeye strengthens its positive view of CombinedX and raises its Base Case and forecasts following a solid Q4 report. Partly thanks to reduced employee churn, organic growth increased to 16.5% and the adjusted EBIT margin to 11.2%, beating our forecasts. Despite the surge in the share price following the Q4, CombinedX is still trading at low multiples.

Addnode Group

Proact IT Group

CombinedX

* Lack of major recurring revenue streams, potentially impacting business stability and predictability.
* Limited geographic diversification, with a high concentration of sales in Sweden.
* Absence of easily identifiable sustainable competitive advantages typical in the IT consulting industry.
* Not expected to achieve five-fold growth within a decade, indicating potential limitations in long-term expansion.
* Operates in a fragmented market with numerous competitors, which could impact pricing power and market share.

* Strong positioning in specialized IT consulting niches, leading to above-average profitability and solid returns on invested capital.
* Benefits from secular tailwinds in digitalization, cloud computing, and AI, with a business model unlikely to be disrupted in the near future.
* Demonstrates operational stability with minimal regulatory interference, independence from key individuals, and limited cyclical dependencies.
* Proactively promotes environmental sustainability and maintains high employee satisfaction, as evidenced by a strong eNPS score.
* Products contribute to the greater good by helping businesses digitize and become more efficient, while avoiding any environmental or ethical issues.

* Inconsistent earnings growth, failing to maintain 10%+ growth over five years or show stable growth over a decade.
* Operating margin below 20% and not increasing for three consecutive years, suggesting potential efficiency or pricing power issues.
* Stock price has not compounded by at least 10% since IPO, indicating underperformance in long-term shareholder value creation.

* Strong financial health with current assets 1.5 times greater than current liabilities, low debt levels, and good interest coverage ratio.
* Efficient cash flow management, demonstrated by high Operating Cash Flow and Free Cash Flow conversion rates above 80% over the past five years.
* Attractive dividend yield between 1-2.5 times market median, well-covered by cash flows, with recent growth exceeding 7% annually.
* Return on Assets outperforming industry average over the past five years, indicating superior asset utilization.

* Management team's average tenure is slightly less than five years, potentially limiting institutional knowledge.
* Inconsistent achievement of the 10% EBIT margin target, despite overall growth and transparency about challenges.
* Lack of opportunistic action on attractively priced stock, opting for dividends over share buybacks.
* Absence of a controlling owner with more than 20% voting rights, which could provide additional long-term stability.
* Limited experience of CEO in IT consulting industry prior to joining CombinedX, though mitigated by five years at the company.

* Strong visionary leadership from CEO Jörgen Qwist, with a clear long-term outlook and commitment to creating leading specialized IT consulting brands.
* Decentralized organization promoting accountability, with a management team experienced in M&A and listed companies.
* Consistent communication strategy focusing on long-term value creation, with transparent reporting and upfront discussions about challenges.
* Significant insider ownership, including founders, board members, and management, aligning interests with shareholders.
* Diverse and experienced board of directors with relevant expertise in IT consulting, digitalization, and entrepreneurship.

SEKm	2022	2023e	2024e	2025e
Revenues	650.8	763.1	801.7	838.7
Revenue Growth	16.2%	17.2%	5.1%	4.6%
EBITDA	80.9	101.0	109.3	117.2
EBIT	52.6	71.8	80.3	88.3
EBIT Margin	8.1%	9.4%	10.0%	10.5%
Net Income	35.6	54.8	61.6	67.9
EV/Revenue	0.7	0.7	0.6	0.5
EV/EBIT	8.2	7.2	5.7	4.5

Back on Track

Employee Churn Back to healthy Levels

New Base Case SEK60 (52)

Key financials

Investment thesis