Innofactor Q1 on Tuesday: Satisfactory quarter by the company's standards expected, still outperforming the sector

Translation: Original comment published in Finnish on 4/18/2024 at 7:04 am EEST.

Innofactor will publish its Q1 report on Tuesday at 9:00 am EEST. We estimate revenue growth to have slowed slightly in Q1, but to have been good given the challenging market environment. Additionally, we predict profitability to have been at a satisfactory level and slightly below the comparison period. In Q4, the company started to report on its business areas and revenue structure, which has significantly improved the visibility on earnings drivers.  

We expect continued outperformance of the market in terms of revenue growth

Innofactor did well last year, while the rest of the IT service market showed some clear weaknesses. From the perspective of comparison periods, Q1 was the sector's strongest quarter last year. We estimate that uncertainty will gradually start to show also in Innofactor’s figures. We expect Innofactor's revenue growth in Q1 to slow down to 6%, to 21.4 MEUR (Q3-Q4 Innofactor 7-8% and IT service sector 0-2%). Among the business areas, we are particularly watching the development of Information and Case Management and Digital Services, as these have shown the best growth. We also look forward to hearing your comments on the market, order book developments, and outlook.

We predict profitability to remain at a satisfactory level

We expect EBITDA to remain flat at 2.5 MEUR. As a result, we forecast EBITDA-% to decline to just under 12% against a good comparison period (Q1'23 12.3%), driven by inflation and unfavorable net customer price developments. Profitability is weak for Innofactor's structure, with other countries clearly depressing development and Finland holding the line with a strong performance. However, in view of the challenging market, we consider the level satisfactory. In terms of business areas, Business solutions are the main bottleneck for growth, but profitability is also constrained by Cloud, Data, Modern Work and Data Security solutions. We do not expect any major changes in the other income lines. Thus, we expect EPS to also remain at the level of the comparison period in Q1 at EUR 0.03.  

Further earnings growth expected in 2024

Innofactor traditionally forecasts an increase in revenue and EBITDA compared to the previous year. We forecast Innofactor's revenue to grow by 5% to 84 MEUR in 2024 and EBITDA to increase to 9.9 MEUR, or 11.7% of revenue, driven by better billable utilization (9.1 MEUR or 11.3% in 2023). Sales success is now critical.