Freemelt: Commercialisation efforts underway - ABG

Low H1 revenue, but progress behind the scenesTarget: SEK 1bn company by 2030, with 25% recurring revenuesLong-term outlook unchanged, fair value SEK 10-20

Q2: Progress behind the scenes
In Q2, one Freemelt ONE system was ordered and delivered, resulting in sales of SEK 5.5m (5.2m). There is one order in the order book, which is expected to be delivered in Q3. Management emphasised that while order intake has been slower than expected in H1, this is because expected orders have taken longer to land than anticipated, but no prospective orders have been lost. The underlying reason is lengthy university decision processes. EBIT was SEK -23m (-14m), and ABGSC adj. EBIT was -13m (-12m). Considering the low revenue and expansion efforts in progress, such as the recruitment of key employees, we think these numbers demonstrate that costs are being kept under control. FCF was SEK -16m (-14m), i.e. no significant deviation from what could be expected based on adj. EBIT.

Near-term estimates down on slow order intake
The continued delay in order intake means we reduce '23e-'25e sales by 14-3%. The reason we do not cut estimates further after the relatively disappointing H1, is management's comments that prospective orders have not been lost, only delayed. '23e-'25e adj. EBIT is reduced by SEK 2-4m. In the report, the company mentioned several steps being taken to further commercialise its business, including establishing an American subsidiary, recruiting several key employees, and making progress on the e-MELT industrial printer. The company also announced its strategy for 2030, which comprises becoming a SEK 1bn company, and focusing on providing services and aftermarket sales to industrial customers, thus partnering with its customers for the long term. The goal is for these recurring revenues to constitute 25% of 2030 revenues.

Valuation
The share is trading at 10-3x '23e-'25e EV/Sales. As the long-term outlook remains unchanged, we reiterate our fair value range of SEK 10-20.

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Länk till analysen i sin helhet: https://cr.abgsc.com/foretag/Freemelt/Equity-research/2023/8/freemelt---commercialisation-efforts-underway/