Vitec - Increased M&A pace - ABG

Solid underlying momentum likely to continue in Q2 and largest acquisition ever completed in July Adj. EBITA +8-17%, share at 30.3x ‘23e EV/adj. EBITA Q2 likely another solid quarter Vitec started off the year with good organic growth partly driven by KPI-linked price increases that take place annually. We think this has continued, and with its recurring revenue base (~85% of sales), we estimate another quarter of good organic growth of 7% (8% in Q1) as the revenue base is broad due to more than 30 subsidiaries. Margin wise, Q2 is seasonally a good quarter, and we estimate 31.5% in Q2, up from 29.2% in Q1 and 30.7% y-o-y. Headwinds are likely to come from higher salary inflation that did not have full effect in Q1 and also somewhat fewer working days which has a negative effect on service revenues. There is limited consensus to compare with, but 7% organic growth and 17% adj. EBITA growth y-o-y in Q2e should be seen as a solid quarter, in our view.

Three acquisitions in Q2 add 15% to 2023e sales Vitec started off 2022 with a slower pace of M&A but during Q2 has closed three acquisitions. Hotellinx in Finland and Scanrate in Denmark were of normal size (SEK 20-60m in sales each), while ABS Laundry Business Solutions in the Netherlands, closed in July, was Vitec’s largest acquisition ever, with sales of SEK 203m and EBITA of SEK 82m (for an EBITA margin of 40%) in 2021 for a total EV of EUR 80m (10.4x EV/EBITA on 2021). Given the size of ABS, we think an IPO would have been an option just 9 months ago, but as a result of the almost closed IPO window, Vitec has now been able to acquire a seemingly good recurring software business at an attractive multiple. Perfectly in line with its outlined strategy. We include the acquisitions in our estimates and increase 2023e-24e sales and adj. EBITA by 15% and 17%, respectively.

Valuation 18% above its 5-year average On our updated estimates the share is trading at 30.3x 2023e EV/adj. EBITA, and on FactSet NTM estimates the share is tr...
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