Litium: Growth is still top priority - ABG

New communication around financial target…
…” balance between profitability and growth”
The share trades at 2.8x-2.4x EV/ARR

Q1: ARR up 19% y-o-y and continued EBITDA improvement
Litium delivered a Q1 report fairly in line with our estimates. The ARR grew 19% y-o-y, only 1pp lower than our estimate of 20%. In connection with this, the company changed its communication in relation to its financial targets. From the previous target of 20-40% ARR growth, the company has now removed the figures and instead set a somewhat vaguer target that the company says will give it "better prerequisites to create long term high growth with more room to maneuver the balance between profitability and growth” (see page 3 for screenshot). We interpret this to be because the company likely will not deliver on the higher range of the previous goal. In the short term, we believe the uncertainty in the world and the new price model might hold back the ARR in 2022. However, we still expect strong ARR growth of 24% in 2022. In the longer term, we still believe Litium will deliver ARR growth close to 30%, where we expect the company to profit from the new price model. On the EBITDA level we expected a small but positive figure. Instead, EBITDA came in at SEK -1.5m, which still is an improvement for the fifth quarter in the row (SEK -3.2m in Q1’21). We expect this trend to continue.

We still expect high growth
We retain our ARR estimate for 2022e, but we slightly lower our ARR growth forecasts for ’23e-’24e by 3pp due to the new financial target. We slightly adjust our GM to better mirror the fluctuation in net sales due to seasonality. We retain our opex assumptions, resulting in lower EBIT due to our sales revisions.

We keep our fair value range at SEK 15-41 per share
The share is trading at EV/ARR of 2.8x-2.4x for ’22e-’23e on our new estimates. Since we have only made small estimate revisions, we keep our fair value range at SEK 15-41 per share.
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Länk till analysen i sin helhet: https://cr.abgsc.com/foretag/Litium/Equity-research/2022/4/litium---growth-is-still-top-priority/