Litium: Should deliver a robust Q2, despite headwinds - ABG

- We cut '24e-'26e ARR by 2-3% on continued macro weakness
- Still awaiting a return in B2C business momentum
- EV/ARR ~2.4x, '24e EV/EBITDA ~12x

What to look for in Q2'24e
For Q2, we expect a reported ARR of SEK 71.1m and sales of SEK 18.6m. These figures imply y-o-y growth rates of 6% and 1%, respectively. We also anticipate an EBITDA of SEK 3.7m, which corresponds to a margin of ~20%, and operating cash flow of SEK ~3m. Given the linearity of the ARR growth and the large share of recurring, fixed revenues, it is unlikely that sales will be more volatile than history suggests.

Estimate changes
We make minor estimate revisions prior to the report: we cut '24e-'26e ARR and EBITDA by 3-2% and 5-1%, respectively, since we continue to believe the company's growth will be somewhat more muted due to external headwinds that B2C clients continue to face. While the company's high share of fixed revenues is positive in a downturn, the key driver of growth for the current client base should be based on volumes. Once volumes grow, Litium's variable sales will grow. However, we do not expect that to occur until H2'24e at the earliest. Our view of the company's long-term prospects remains intact because Litium is positioned to benefit from the growth of its SME clients.

Valuation
Our revised estimates imply that the company is trading at an EV/ARR multiple of ~2.4x and at a '24e EV/EBITDA of ~12x, whereas Nordic IT services peers are trading at a '24e EV/EBITDA of ~16x.

Länk till analysen i sin helhet: https://cr.abgsc.com/foretag/Litium/Equity-research/2024/7/litium---should-deliver-a-robust-q2-despite-headwinds/