Translation: Original comment published in Finnish on 2/23/2024 at 6:58 am EET.

Sitowise will report its Q4 results on Tuesday, February 27, 2023. We expect the last quarter to be weak due to fewer working days, company system updates (ERP, CRM) and the weak market situation. We now expect revenue to fall more sharply than at the beginning of the year and earnings to fall to a very low level. Rather than this year's poor performance, our interest is focused on the company's efforts to improve profitability. The weak housing market is expected to continue, but guidance should reflect already improving profitability and an improving overall market outlook towards the end of the year. We have slightly lowered our Q4 earnings estimates (FX, market developments), but we have not changed our view (more) or our pre-earnings price target (EUR 3.30).

Revenue turns into a more pronounced decline

We expect Sitowise's revenue to decline by 5.3% in Q4 to 54.5 MEUR (Q4'22: 57.6 MEUR), continuing the downward trend that started in Q3. We estimate that the decline in the order book (Q3: -5% y/y), the weakness in Building’s target market, one working day less compared to the comparison period (negative impact of 0.7-0.9 MEUR) and currency fluctuations (EUR/SEK) will weaken revenue. The introduction of new systems (ERP, CRM) is also likely to have had a negative impact on the billing rate, which will be reflected in both revenue and earnings in Q4. By business line, we expect Infrastructure to outperform the group. The Digital Solutions business has shown good growth throughout the year, but we expect revenue growth there to slow slightly as support from the implementation of Bitcomp's Leafpoint solution diminishes. In Sweden, delays in integration and a challenging project have slowed down sales efforts, which is still estimated to be reflected in business development.

Low earnings level

We expect profitability to decline significantly year-on-year as the above-mentioned reasons weaken billing rates and bring additional costs. We forecast Sitowise's adjusted EBITA to decline to 3.1 MEUR and the margin to deteriorate to 5.6% (Q4'22: 9.2%). Inflationary pressures in other costs and wages also have a negative impact on profitability. For the full year, we expect Sitowise's margin to be 8.3% (2022: 10.0%), compared to guidance of below 9.2% but at least 8.0%. We expect EPS in 2023 to be EUR 0.20 and a dividend of EUR 0.12 per share.

Guidance should reflect earnings growth with margin improvement

Sitowise's guidance and outlook should anticipate better profitability in 2024. We forecast revenue to decline by around 3% (2024e: 206 MEUR) and adjusted EBITA to increase by around 7% to 18.9 MEUR through margin improvement. The low-participant consensus is in line, expecting operating profit (EBIT) to increase by around 15%, while revenue remains almost unchanged (consensus: 211 MEUR). Thus, the outlook should support a clear margin improvement. In addition to guidance on the outlook, we are monitoring signs of a pick-up in house building, although H1 still seems quiet, based on reports from competitors. We expect the development of Infrastructure to support growth in 2024 and the market as a whole to perform well. We expect developments in Sweden to be generally more stable than in Finland.