The Q2 2023 report came in stronger on all lines compared to our estimates, except for the order intake. Sales, COGS, OPEX and EBIT all came in better than expected. However, order intake is a crucial indicator of future sales. Further, in our latest reach update, we stated that the order intake for Q2’23 would ultimately indicate the market’s response to the new product offering. The order intake in Q2’23 was clearly below our and management’s expectations, implying a weaker market and a constrained outlook in the near term for the Dutch market.

Net sales of SEK10.1m is an increase of 202% y/y and 31% above our expectations of SEK7.7m. The gross margin of 44% is 9pp above our forecast of 35%. Ongoing price negotiations have reduced production costs and, combined with a favourable product mix, led to gross margin improvement. By negotiating directly with A-brand component suppliers and cutting out the go-betweens, the company’s COGS and gross margin should stabilise as we move forward. However, Heliospectra’s business segment is not a high gross margin segment. We anticipate the gross margin to range from 30-45%, depending on the product mix.

The order intake of SEK9.5 m is 21 % below our forecast of SEK12m. The CEO cited several factors, such as inflation, increased interest rates, reduced energy expenses, and a deferred subsidising program in the Netherlands, as reasons for the order intake being weaker than anticipated. According to the company, the market in the Netherlands declined by 40% to 50% compared to the previous year. As a result, numerous cultivators delayed their investment decisions to the third quarter, leading to fewer potential projects and escalated competition within the market.
The trailing twelve-month (TTM) order intake has been positively trending since Q3’22. As mentioned above, we expected to see a strong reinforcement of the positive trend and a significantly higher order intake in Q2’23.

During the second quarter, OPEX totalled SEK9.4m, marking an approximately 3% y/y decrease and coming in 5% lower than our initial estimate. Last year, Heliospectra initiated a cost-reduction program. However, the program was introduced in Q1’22, implying that Heliospectra still managed to cut some further costs y/y. The program has consistently yielded positive results during the last five quarters, effectively shaping the company’s cost base.
EBIT was reported as negative SEK4.6m, in contrast to our projection of -SEK 6.8 million. This deviation mainly stemmed from a stronger top line and lower COGS than anticipated.
At the end of the second quarter, the cash position was SEK16m, and the net cash flow after financing activities was SEK2.7m. The net cash flow includes issue proceeds of SEK21.5m from the rights issue in April ‘23.

The Dutch market holds substantial significance for Heliospectra, given its scale and prominence in the horticulture industry. Inflation, increased interest rates, reduced energy expenses, and a deferred subsidising program in the Netherlands affect the market in the Netherlands, which declined from -40% to -50% y/y. As a result, numerous cultivators delayed their investment decisions to the third quarter. Further, Heliospectra’s ability to finalise orders has encountered obstacles due to an absence of reference projects. Growers frequently lean towards more established suppliers. To tackle this challenge, sales and marketing tactics are now concentrated on augmenting brand recognition within the Netherlands and establishing reference growers within both the ornamental and vegetable sectors. Heliospectra is preparing to expand the sales and application team in Western Europe to support these initiatives, anchored by a strategic hub in the Netherlands. We believe a legal entity and sales office will be in place during H1’24.
The North American market, particularly Canada, appears more resilient than the Dutch market. Heliospectra is encountering comparatively less competition in this region, and the existing subsidy programs enable substantial price reductions for the end customers.
Overall, the outlook is cautiously optimistic. The focus is clearly on establishing a footprint in the critical Duch market and on the European market, whereas the North American offers greater potential for securing larger volume orders in the immediate future. Meanwhile, the R&D activity remains high, with several product and platform enhancements ahead that could potentially boost order intake.

Our forecast still implies that Heliospectra will reach breakeven in 2025. Following the Q2’23 report, we trimmed our forecast for H2’23, lowering our topline expectations by 17%. On the bright side, we have taken down OPEX, positively affecting EBIT for ’23. We believe Heliospectra currently has significant pending contracts that can potentially materialise into confirmed orders in the fourth quarter. However, it is important to note that these contracts have not been factored into our existing forecasts. Should these contracts indeed translate into orders, there is also the possibility that their fulfilment could extend into the first half of 2024.
Considering the seasonality of the business, with a weaker H1 followed by a substantially stronger H2, we expect to see quarterly breakeven results prior to 2025. Nevertheless, we estimate Heliospectra will achieve full-year breakeven in 2025. The tables below summarise our forecast changes and forecast ’23e-‘25e.

Our valuation remains intact, with a Base case fair value of around SEK 1.9 per share. This is based on the financial forecasts in the table above and long-term assumptions outlined in the table below, including:
• Our valuation includes the dilution from the equity issue in April ’23.
• Our fair value range remains quite broad: SEK0.5-5 per share. However, this is quite common for companies similar to Heliospectra. That is to say, high future growth expectations and a difficult-to-assess sustainable profitability level.