Vitec: Estimates down 2-5% on higher costs - ABG

Organic growth remains in healthy high-single digits Salaries and travel costs reduce adj. EBITA by 2-5% Share at 28.3x 2023e EV/adj. EBITA Costs surprised negatively in Q2
Vitec continued its solid organic growth trend in Q2, with recurring revenue growing 8%, although services revenue fell short of expectations, putting net sales in total -1% vs us and FactSet consensus. On costs, other external costs surprised us negatively, putting total opex 4% above our expectation. We expected to see higher salaries, but in combination with pent-up demand for travelling and conferences in the quarter, the higher costs caused a 16% miss on adj. EBITA vs us and a 23% miss vs FactSet consensus (a thin consensus). Adj. EBITA fell 2% y-o-y. As Vitec does not report on a segment basis, it is difficult to know if the cost miss relates to a specific subsidiary, group costs or a general trend overall. With recent acquisitions having a higher margin than Vitec itself, we do not feel too concerned about the margin trend ahead.

Estimates down on slightly higher costs We make small positive adjustments to our recurring revenue forecasts (0.5%) while reducing license and services sales somewhat, putting net sales revisions unchanged in our forecast period. We increase our cost estimates due to the higher salary inflation and travel costs seen in Q2, resulting in 1% higher opex for 2022e and relatively unchanged 2023-24e. All in all, this leads to 2-5% cuts to adj. EBITA in 2022-24e.

Share at 28.3x 2023e EV/adj. EBITA Vitec remains positive about the M&A market activity and opportunities, and we also agree that Vitec has a unique position in the European software market, as it can capture high quality recurring software businesses at relatively low multiples due to its long-term industrial ownership mindset. We expect to see continued M&A, but this is not in our estimates. The share is trading at 28.3x 2023e EV/adj. EBITA on our revised estimates.

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