Formpipe: Public DK setback, but several other positives - ABG

- Q2 sales impacted by lower Public DK deliveries – again
- We cut '24e-'26e EBIT by 12-5% on lower sales assumptions
- Slowdown in margin progression in '24e, before picking up in '25e

Private remains the shining star
Q2 sales were a mixed bag, with further improvements in Private while Public continued to face headwinds from lower deliveries to Landbrugsstyrelsen. The latter has now weighed on sales for four consecutive quarters, and although we expect the momentum to gradually pick up from here, the pace of recovery is taking longer than we expected. That said, Public Sweden continues to improve after having focused on increasing its delivery capacity in recent years. Overall, sales fell by -3% y-o-y while EBIT declined from SEK 13m to SEK 8m. Comps were tough, however, as Q2'23 included an unusually large deal (worth ~SEK 4m).

Estimate changes
After a soft start to the year, ACV picked up well in Q2. We continue to expect a positive ACV trajectory, driven by 1) improved momentum with Temenos, 2) an increased number of banking partners (Formpipe will go from 1 to 10 core partners), and 3) the new packaging of Lasernet in Microsoft Dynamics, which will be launched in October. We also note the news that a first cross-border deal has been signed in the Public segment. This suggests that the merger of the public segments is beginning to bear fruit. We expect more similar deals, although we stress that sales cycles are long. All in all, we lower '24e'-'26e EBIT by 12-5% on 1-2% lower sales, mainly due to weaker-than-expected delivery sales.

29x-11x '24e-'26e EV/EBIT
We continue to find Formpipe's business transformation in recent years appealing. In addition to an improved growth outlook, the higher share of recurring revenues means improved visibility on estimates, while there are good prospects for further margin expansion in '25e and beyond. The stock is trading at 29x and 16x '24e and '25e EV/EBIT on our updated estimates.

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