Sales decreased by 6% y/y but beat our forecast by 6%. The organic growth was -7%. The total sales growth was negatively affected by lower System sales, where the comparison number for Q4 2022 was strong due to component shortages earlier in 2022. However, System sales was 11% above our expectations. The recurring revenue (Cloud and Support) roughly matched our forecasts and grew by 13% y/y, and the organic growth was a solid 9%. EBITA matched our forecasts at SEK91m (102), as marketing expenses mitigated the slightly higher gross profit. The y/y decline in EBITA was expected due to the strong System sales in Q4 2022.

The net intake of new cloud contracts was a record high SEK197m (124), mainly driven by BU West and Nordic & Baltics. According to management, the strong number resulted from many deals rather than a few big ones. The strong intake of new contracts supports solid Cloud revenue growth – which has a strong momentum since a few years back – some quarters ahead (there is typically a 6-month lag from signing to revenue, and the contracts usually span three years). Besides being recurring revenue, increasing the share of cloud revenue is crucial for Proact to reach its 8% EBITA margin target.

We raised our Base Case somewhat to SEK115 (110) despite keeping our short-term forecasts unchanged. We raise our sales forecasts by 2% for 2024 and 2025, mainly due to slightly higher expectations on System sales. At the same time, we increased our Sales and marketing expenses assumptions by 2-3%, following a higher level than expected in the quarter. Overall, we lower our EBITA forecast for 2024-25 by 1%. We expect modest organic growth of 3-4% for 2024-25 and EBITA margins of ~7%, below the company target of 8%. Proact is trading at 7.5x EBITA 2024, corresponding to a ~15% discount to peers.