Sitowise Q4 morning result: Better should be possible

Translation: Original comment published in Finnish on 2/27/2024 at 9:18 am EET.

Sitowise reported a worse-than-expected Q4 report on Tuesday. The company's revenue declined more than expected and EBIT was also below our forecasts due to the challenging housing market and system changes (CRM, ERP) that weakened the billing rate. On the lower lines, the differences only increased due to a number of one-off items and the company also proposed not to pay a dividend. The outlook continues to be challenged by the housing market in both Finland and Sweden, which was reflected in a declining order book during the quarter. The guidance was also more cautious than we had expected and we estimate that the company does not expect at least a clear margin improvement.

Revenue down in line with our expectations

After strong growth in the first half of the year (H1'23: 12%), Sitowise's revenue in Q4 turned to a more pronounced decline of around 8% (Q4'23: 52.8 MEUR) year-on-year. Exchange rates and one less working day in the quarter had a negative impact on revenue, but organic revenue was also down by around 6% in the quarter. Revenue fell by 23% in the Buildings business, which was hit by the weak market. In Sweden, revenue was flat, while Infra (+4%) and Digital Solutions (+4%) continued to grow. However, growth is already significantly slower than at the beginning of the year. The order book was down 10% year-on-year at around 167 MEUR, reflecting the weaker outlook for the housing market in particular.

Poor profitability for a variety of reasons

Adjusted EBITA decreased year-on-year to ca. 2.4 MEUR (Q4'22: 5.3 MEUR) and missed our 3.1 MEUR forecast. The EBITA margin dropped to 4.5% (Q4’22: 9.2%), also below our expectations of 5.6%. It was known that the lower billing rate (73% vs. 76% y/y) due to the weak housing market and system reforms, as well as one less working day in the quarter, would weaken the result, but the impact was larger than expected. The system changes had an impact of -2% on revenue and up to 2.5 percentage points on the EBITA margin. In the reported figures, one-off restructuring costs significantly reduced the EBIT and higher than expected financial charges ultimately led to a net loss and EPS of EUR -0.02. Operating cash flow decreased to 11 MEUR in Q4 (Q4'22: 13 MEUR) and the dividend proposal remained at zero (forecast: EUR 0.12) to take into account market conditions and potential growth investments. We had overestimated the company's willingness to pay a dividend, and we believe that investing in growth is the right thing to do at this time.

Guidance was cautious

Sitowise forecasts a slight decrease in revenue (2023: 211 MEUR) and an adjusted EBITA margin at or above the 2023 level (2023: 8.1%). Before the result, we were in line with revenue (24e: -3%), but we expected the margin to increase significantly already (24e: 9.2%). This is probably still achievable, but the company apparently sees no significant room for improvement in 2024. Based on the outlook, a recovery in the Buildings business is not expected until the second half of the year at the earliest. There are some weak positive signals in Sweden. There are growth opportunities in Infra and Digital Solutions and order books are generally at a good level. In general, however, the weak economic outlook for Finland and Sweden is now slowing growth for Sitowise across the board.