Solwers H1 morning result: Report well in line with our expectations

Translation: Original comment published in Finnish on 8/31/2023 at 9:06 am EEST

Solwers released its H1 report this morning, which was well in line with our expectations. Revenue in the first half of the year grew slightly as expected, and the profitability level in H1 also corresponded well to our expectations. The company has not provided numerical guidance for the current year, and as expected it was not given now either.

Revenue growth was in line with our expectations

Solwers’ H1’23 revenue increased by 2% from the comparison period to EUR 33.2 million, which was in practice the same as our estimate. We believe growth was supported by completed acquisitions and suspect that Group-level revenue decreased organically. The company commented that the organic growth of its Finnish operations continued, but the weak SEK has slowed down growth. Roughly estimated, Sweden now accounts for about half of Group-level revenue, so the weak SEK has a significant slowing impact on growth.

Profitability decreased as expected from the comparison period

In H1, EBITA reached EUR 3.5 million, which was slightly (3%) below our EUR 3.7 million estimate. This corresponds to an EBITA margin of 10.7% which is good for the company. Profitability, however, fell significantly from the comparison period, which, according to the company, was due to higher wage costs, other cost inflation and tightened competition. However, the company said that billable utilization remained at the level of the comparison period. Overall, the cost structure of the company was well in line with our expectations. Below the operational result lines, net financial expenses and taxes were slightly lower than expected as a whole, which meant that H1’s EPS was EUR 0.15 and in line with our estimate.

Comments on the future indicate stable operational development and M&A transactions

As usual, Solwers did not provide numerical guidance for 2023. In its outlook, the company commented that its reasonable order backlog supports positive revenue development, and the company expects revenue to grow and earnings to remain at a good level, although the weak SEK will have a negative impact on revenue. The company also commented that the acquisition market has continued to be active and it expects to supplement its service offering with a few acquisitions this year. As we wrote in our pre comment, the company has considerable leeway for M&A transactions based on its financial position and room to improve its capital use. Our full year 2023 estimate expects a 3% increase in revenue for the current year and an EBITA of roughly last year’s levels at EUR 7.3 million (2022 EBITA: 7.2 MEUR). Reflecting this overall picture and the H1 report that is approximately in line with our expectations, the change pressure in our estimates is low after the H1 report.