Innofactor Q2 on Thursday: We expect good performance, despite the uncertainty on the market

Translation: Original comment published in Finnish on 7/19/2023 at 6:40 am.

Innofactor will publish its Q2 report on Thursday at 9:00 am EEST. Innofactor's end of last year and Q1 were good. However, the uncertainty of customer demand, which has been a hot topic in Q2, has partly started to materialize, which also raises uncertainty concerning Innofactor’s development. We expect that Innofactor's net sales has grown well organically and supported by the acquisition. We also expect that profitability has improved from the weak comparison period but decreased from previous quarters.

We expect growth has continued as good, but the difficult market situation creates uncertainty

The company’s H2 and Q1 were operationally good, which gives some confidence in the short term. However, in Q2 the uncertainty talked about in the sector has started to materialize in the private sector and in particular in software development. These market concerns have since also trickled to the public sector and tighter competition has partly appeared as price competition. We suspect that this has also been reflected in Innofactor, as the company has not reported winning public sector competitive tendering in a similar manner to previous years. We estimate that Innofactor's net sales increased by 18% to EUR 19.9 million in Q2 driven by organic growth (10 percentage points) and supported by the Invencoacquisition. In addition, we monitor the development of materials and services and net sales per employee, which indicate whether organic growth was driven by subcontracting or own billable utilization.

We expect profitability to improve from a weak comparison period

We expect that EBITDA will rise to EUR 1.9 million (Q2'22: 1.4 MEUR) driven by net sales and improved billing rates. Thus, we estimate that EBITDA % increased to 9.7% in Q2 from a weak comparison period (8.1%) but fell from previous quarters (~12%) driven by wage inflation. In the other result lines, we estimate that depreciation was EUR 0.1 million and financing costs EUR 0.2 million higher than in the comparison period. We estimate that EPS has increased by one cent to EUR 0.03 in Q2.

We expect the company to reach its guidance, despite market uncertainty

As usual, Innofactor’s guidance indicates that net sales and EBITDA will grow from the year before. Ahead of the Q2 report we expect that supported by the Invenco acquisition Innofactor's net sales will grow by 12% to EUR 80 million in 2023 (organic 8%) and EBITDA will reach EUR 8.9 million (11.5% of net sales, 2022: 7.8 MEUR). We are still more interested than usual in the market comments of the entire sector in Q2. In the market uncertainty, Innofactor is supported by the company's high 60% share of net sales from continuous agreements compared to project suppliers.