Redeye provides an update following the Q1 2024 report. Sales increased by 5.8% y/y to EUR5m, with a EBITDA margin of 4.7%. PrivX grew by 44.5% pushing Subscription growth by 14.5%. We make minor adjustments for 2024 and reiterate our valuation range. We argue that SSH should be seen as a stable company within the cybersecurity sector with a robust subscription revenue model that is growing profitable.

SSH Communications

* Current growth trajectory does not suggest a realistic five-fold increase in revenues over the next decade.
* Operates in a highly fragmented cybersecurity market with numerous global players, increasing competitive pressures.
* Has not consistently generated returns above its cost of capital, as evidenced by fluctuating profitability and investment returns.
* Lack of evidence for proactive environmental sustainability initiatives or efforts to reduce the company's own environmental footprint.
* Insufficient data on employee satisfaction and workplace culture, making it difficult to assess overall employee sentiment.

* Strong recurring revenue model with subscription-based offerings, providing stability and predictability in earnings.
* Well-positioned in high-growth cybersecurity niches like Zero Trust security and quantum-safe encryption, capturing significant market value.
* Diversified revenue base across regions and product lines, reducing dependency on single markets or products.
* Long-standing expertise in cybersecurity since 1995, with continued innovation in addressing emerging security challenges.
* Products contribute to the greater good by enhancing global digital security and protecting critical data systems.

* Operating margins below 20% and not consistently increasing, indicating potential cost management or competitive pressure issues.
* Return on Equity (ROE) and Return on Assets (ROA) underperforming industry averages, suggesting inefficient use of shareholder capital and assets.
* Lack of consistent revenue and earnings growth above industry averages, potentially signaling market share losses or competitive weaknesses.
* Absence of dividend payments or growth, limiting appeal to income-focused investors and potentially indicating limited excess cash flow.

* Strong gross profit margin exceeding 40%, indicating pricing power and potential for accelerated profits with sales growth.
* Cash and short-term investments cover expected cash burn for over two years, demonstrating financial stability and resilience.
* Likely to become sustainably cash flow-positive in the near future, signaling potential for self-funded operations and business model validation.
* Efficient inventory and accounts receivable management, with ratios below 20% and their 5-year averages, indicating effective working capital control.
* High Operating Cash Flow and Free Cash Flow conversion rates (above 80%) over the past five years, suggesting strong ability to generate real cash profits.

* Limited female representation in leadership positions, indicating a lack of gender diversity at the board and executive levels.
* Recent appointment of an interim CEO may impact leadership continuity and raises questions about the depth of experience with the company's specific operations and culture.
* Minimal insider ownership among management, potentially reducing alignment between leadership and shareholder interests.
* Mixed financial performance, with investments in new technologies and business models yet to consistently deliver strong returns on capital or meet growth expectations.
* Absence of dividend payments, which may deter income-focused investors, though this aligns with the company's growth-oriented reinvestment strategy.

* Strong leadership vision and commitment to innovation, focusing on cutting-edge cybersecurity solutions like Zero Trust and quantum-safe encryption, positioning SSH for long-term growth in evolving markets.
* Transparent and consistent communication strategy, with management candidly addressing challenges and maintaining a clear narrative around the transition to a subscription-based recurring revenue model.
* Robust governance structure with a majority independent board, strong shareholder representation, and alignment of executive compensation with company performance and long-term objectives.
* Strategic focus on capital allocation, evidenced by the shift to a subscription model, continued R&D investments, and opportunistic share repurchases to enhance shareholder value.
* Clear commitment to sustainability and ESG principles, integrating these objectives into strategic goals and executive compensation structures.

SEKm	2023	2024e	2025e	2026e
Net Sales	20.4	23.2	28.7	35.0
Sales Growth	5.8%	13.9%	23.5%	22.3%
EBITDA	1.8	1.5	3.6	4.9
EBITDA Margin	8.8%	6.3%	12.6%	14.0%
Net Income	-1.9	-1.8	-0.24	0.68
EV/Sales	2.6	2.5	2.0	1.6
EV/EBITDA	29.7	39.3	15.5	11.2

Solid Q1 2024 report

Expecting sales to ramp up in H2

Reiterate the valuation range

Key financials

Q1 2024