Netmore generated Q3 2023 net sales of SEK27.5m (SEK11.8m), relative to our estimate of SEK21.2m, resulting in an impressive y/y growth of 133% and 37% q/q. IoT Network Services presented SEK18.7m in sales relative to SEK2.9m in Q3 2023. The roll-out of the Yorkshire Water contract is the main driver of this development, which revenues are non-recurring and of low margin. This is, however, supportive of the long-term recurring revenue base of Netmore.

The sensor growth in Q3 2023 was impressive, growing 23% q/q to 259,029 sensors (310% y/y). We understand this is driven by smart measuring primarily within the water segment, which is expected to show solid growth due to EU-supported financing schemes in the coming years. We find these matters very positive, as they provide a path for Netmore’s high-margin recurring revenue base in the coming years.

We increase our estimated sales for the IoT segment, as the contract of Yorkshire will likely continue to drive revenues going forward. However, assessing how much we will see going forward is difficult from an outside perspective. The revenues are of relatively low margin but will drive the long-term growth of recurring revenues with a higher margin profile. We also reduce our Property revenues going forward as a cautionary measure, as the recurring revenues have not scaled as fast as we have previously expected. We now expect Netmore to generate a 34% sales CAGR in 2024e and a 13% sales CAGR during 2025e-2030e. All in all, our fair value range is updated to SEK0.6(0.8)-SEK4.5(4.8) per share, with a base case of SEK1.7(2.3) per share.