Redeye updates on Invisio post Q2-results which came in lower-than-expected owing to soft deliveries during the quarter. However, the order intake reached new record levels and the outlook remains strong. We make limited changes to our estimates and valuation range.

Soft deliveries in Q2, strong outlook for Q3

Invisio reported revenue of SEK270m for Q2 2023 which was c10% below our forecast of SEK300m owing to lower deliveries than expected. The company comments that deliveries are always made in line with customer needs and wishes, which can impact sales on a quarterly basis. Looking into Q3, high inventories of SEK196m compared to SEK148m in Q2 2023 suggests potential for strong deliveries in the coming quarters. Owing to the lower-than-expected sales, EBITDA came in c24% below our forecast. The gross margin was solid at 60.5% while total opex of SEK118m was somewhat above our forecast of SEK113m. The table below summarize our estimates and the outcome for Q2 2023E.

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Invisio

* Lack of recurring revenue model, leading to potential volatility in quarterly sales despite framework agreements providing some revenue stability.
* Growth potential, while strong, may not reach five-fold expansion within a decade, potentially limiting long-term investment returns.
* Unclear stance on environmental sustainability initiatives, which could be a concern for environmentally conscious investors and stakeholders.
* Possible overreliance on defense sector spending, which could expose the company to risks if global defense budgets face unexpected cuts or shifts in priorities.

* Strong competitive position with unique products and limited competition, enabling Invisio to capture significant value in the market and maintain pricing power.
* Robust scalability potential through heavy R&D investment, successful geographic expansion, and strong operating leverage with high fixed costs.
* Benefiting from secular tailwinds such as growing defense budgets and increasing focus on hearing protection, supporting long-term growth prospects.
* Demonstrated operational stability with diversified revenue base, minimal regulatory interference, and limited exposure to commodity price fluctuations.
* Products contribute positively to society by addressing hearing protection needs, and the company maintains good relationships with customers and employees.

* Higher variance in Return on Assets compared to industry average, potentially indicating less predictable profitability.
* Lack of stable earnings growth over the past 10 years, suggesting some volatility in long-term performance.
* Current dividend yield not within the ideal range of 1-2.5 times market median, possibly indicating suboptimal dividend strategy.
* No consistent dividend increases over the past 10 years, which may be a concern for income-focused investors seeking reliable dividend growth.

* Strong profitability with gross profit margin >40%, operating margin >20%, and consistently high ROE and ROA, indicating efficient operations and competitive advantage.
* Robust financial health, with favorable current ratio, low debt levels, and strong interest coverage, suggesting stability and capacity for growth.
* Excellent earnings quality, demonstrated by efficient inventory and accounts receivable management, low one-time charges, and high cash flow conversion rates.
* Consistent revenue and earnings growth, outperforming industry averages and maintaining strong momentum over the past five years.
* Healthy dividend growth and coverage, with over 7% annual increase in the past three years and well-covered by cash flows.

* Limited board member share ownership, potentially reducing alignment with shareholder interests.
* Lack of a controlling owner with a long-term commitment (largest shareholder owns 18%), which may impact strategic decision-making and stability.
* Uncertainty regarding sustainability-related performance incentives, potentially indicating a gap in aligning executive compensation with ESG goals.
* Absence of insider ownership reaching the 10% threshold, which could be seen as a missed opportunity for stronger management-shareholder alignment.
* Limited information on the company's approach to sustainability reporting, potentially indicating a need for improved ESG disclosure and strategy.

* Strong, visionary leadership from CEO Lars Højgård Hansen, who has successfully transformed Invisio into a market leader with a focus on innovation and long-term growth.
* Consistent delivery on financial targets, with a clear strategic plan and commitment to R&D, demonstrating effective execution and capital allocation.
* Transparent and candid investor communication, focusing on long-term value creation and maintaining consistent messaging over time.
* Significant insider ownership, particularly by the CEO and CFO, aligning management interests with shareholders and fostering an entrepreneurial spirit.
* Diverse and experienced board of directors with strong female representation, indicating effective governance and oversight.

SEKm	2021	2022	2023e	2024e	2025e
Revenues	592.9	775.4	1,191.9	1,353.8	1,556.9
Revenue Growth	11.5%	30.8%	53.7%	13.6%	15.0%
EBITDA	70.0	112.7	313.0	372.1	477.5
EBIT	24.8	65.1	255.4	311.2	414.5
EBIT Margin	4.2%	8.4%	21.4%	23.0%	26.6%
Net Income	14.3	44.3	181.9	233.4	310.9
EV/EBITDA	104	71.4	30.7	25.6	19.7
EV/EBIT	292	124	37.7	30.6	22.7

Invisio results outcome
SEKm	Q2 22	Q3 22	Q4 22	Q1 23	Q2 23E	Q2 23A	Diff
Sales	154	195	289	311	300	270	-10%

EBITDA	3	29	72	97	80	61	-24%
EBIT	-8	18	60	84	67	45	-32%
PTP	-8	19	56	84	66	38	-43%
EPS (SEK)	-0.17	0.30	0.95	1.33	1.10	0.60	-45%

Sales growth	-0.4%	36.7%	90.0%	126.6%	95.0%	75.5%	n.a.
Gross margin	57.5%	58.1%	57.4%	62.5%	60.0%	60.5%	n.a.
EBITDA margin	2.1%	15.0%	25.0%	31.0%	26.7%	22.4%	n.a.
EBIT margin	-5.4%	9.0%	20.7%	26.9%	22.3%	16.8%	n.a.

Source: Redeye Research

Soft deliveries in Q2, strong outlook for Q3

Record order intake

Limited changes to estimates

Key financials

Soft deliveries in Q2, strong outlook for Q3