Seamless Distribution Systems: Important quarters ahead
Research Update
2024-02-20
07:20
Redeye revises its estimates and valuation on the back of the Q4 2023 report, which came in below our expectations. While the company continues to replace low-margin sales from SDD with recurring revenues, the financial leverage remains on the high end.
Anton Hoof
Net sales amounted to SEK58m in Q4 2023, 20% below our expectations, primarily due to lower recurring revenues and a weaker quarter for SDD. On a positive note, margins held up impressively, and EBITDA margin increased from 20% in Q3 to 28% in Q4. EBITDA amounted to SEK16m, compared to our estimate of SEK22m, and EBIT landed at SEK6m compared to our estimate of SEK9m. The deviation is explained by the lower sales, while underlying Opex came in lower than expected.
Although SDS almost achieved its 2023 targets, weaker-than-expected cash flow and an uncertain financial situation persist. New bond terms allow a Net debt/EBITDA of 7x as of 31 December 2023 and 6x thereafter. With a year-end ratio of 6.8x, SDS faces tight financial headroom. To meet covenants ahead, improved cash flow in H1 2024 is crucial.
Following the report, we have made a downward sales revision, lowering sales by 11% in 2024e and 8% in 2025e-2026e, primarily due to lower recurring revenues and sales in SDD. While the company continues to replace low-margin sales from SDD with recurring revenues, the financial leverage remains on the high end. Our new base case stands at SEK16 (SEK19), and the fair value range is SEK6-27 (SEK9-36).
| SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
| Total Revenue | 279.2 | 290.9 | 254.8 | 270.8 | 279.0 |
| Revenue Growth | -8.0% | 4.2% | -12.4% | 6.3% | 3.0% |
| EBITDA | 9.8 | 62.0 | 80.0 | 92.5 | 95.8 |
| EBIT | -48.6 | 17.0 | 43.0 | 58.1 | 59.6 |
| EBIT Margin | -19.8% | 6.4% | 16.9% | 21.4% | 21.3% |
| Net Income | -75.4 | -16.0 | 12.0 | 26.5 | 28.4 |
| EV/Revenue | 0.7 | 1.1 | 1.2 | 1.1 | 0.9 |
| EV/EBITDA | 18.6 | 5.3 | 3.9 | 3.2 | 2.7 |
| EV/EBIT | -3.8 | 19.1 | 7.3 | 5.0 | 4.4 |
SDS reported net sales amounted to SEK58m, below our expectations of SEK70m. Regarding the sales mix, New sales landed on SEK17.2m compared to our estimate of SEK18m, Recurring revenues amounted to SEK33.6m compared to our estimate of SEK38m, and Re-occurring revenues amounted to SEK7.6m, below our expectations of SEK14m.
Disclosures and disclaimers