Redeye retains its positive view of CombinedX following a strong Q1 both in terms of growth and margins. While the soft Q2 guidance might dampen the share short-term, considering CombinedX's recent performance, we believe the discount to peers will decline going forward. We leave our Base Case unchanged and raise our forecasts slightly.

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	2026e
Revenues	650.5	780.5	816.7	854.5	889.5
Revenue Growth	16.1%	20.0%	4.6%	4.6%	4.1%
EBITDA	80.9	110.3	117.7	125.9	131.9
EBIT	52.6	76.2	84.7	93.5	100.0
EBIT Margin	8.1%	9.8%	10.4%	10.9%	11.2%
Net Income	35.2	57.7	66.5	73.5	78.7
EV/Revenue	0.6	0.7	0.6	0.6	0.5
EV/EBIT	7.9	7.5	6.3	5.2	4.4

Solid Q1 in Terms of Sales and Margins

Soft Guidance for Q2

Base Case Unchanged at SEK60 – Positive View Retained

Key financials

Review of Q1 2023