Modulight Q1'25: Heading in the right direction

Translation: Original published in Finnish on 04/26/2025 at 12:02 pm EEST

Modulight's Q1 continued on the positive path outlined by the financial statement. Revenue exceeded our expectations and the loss was smaller than forecasted due to lower expenses. Visibility to the company’s business has improved, although it is still low. We raise our forecasts moderately as a result of good development. We reiterate our Accumulate recommendation and raise our target price to EUR 1.5 (was 1.3) corresponding to estimate hikes.

Revenue exceeded estimates

Modulight's Q1 revenue amounted to 1.61 MEUR and exceeded our forecast of 1.44 MEUR. Revenue grew by 52% from Q1’24 and by 12% from the previous quarter. Q1 was Modulight’s best quarter in terms of revenue since the company started quarterly reporting (Q1’23). The company expects the number of devices to be installed to increase clearly during the spring and summer. This should support recurring revenue (PPT) starting from late 2025. During the quarter, the company also announced an order related to quantum computers, which will support 2025 revenue by 0.8 MEUR. With installations and orders, visibility has improved from the previous very low level. Visibility for next year and beyond is still very limited at this stage. The weakened operating environment and dollar in the US impact the company negatively, but the large share of services in exports may mitigate this impact.

The result was better than we expected

EBIT of -1.59 MEUR also beat our estimate of -2.08 MEUR. The better-than-expected performance is due to higher-than-forecasted revenue and gross margin, as well as slightly lower-than-expected costs. Cash flow from operating and investing activities was -2.3 MEUR. Cash flow was weakened by a higher-than-normal increase in working capital this quarter (-0.72 MEUR).  Net cash at the end of the period amounted to 10.6 MEUR (Q1'24: 16.4 MEUR). The balance sheet remains strong, but the company needs a significant revenue uptick to turn cash flow into a sustainable positive position.

We make moderate upward revisions to our estimates

Our estimates rise moderately due to good development and a slightly lower cost structure than before. Modulight's outlook is also more concrete than before, which increases confidence in our forecasts. We expect growth to accelerate in the coming years, but there is still a lot of uncertainty about the outlook.

Opportunity for those willing to risk

The stock's valuation is very imprecise due to the uncertainty of earnings and cash flow turnaround. The valuation relies heavily on future projections, which carry a high degree of forecasting risk. EV/S multiples are 6x-5x for 2025-2026, which we find cautiously attractive due to the substantial growth potential. The DCF model suggests a moderate upside for the stock. We reiterate our Accumulate recommendation following the good development that has continued at the beginning of the year. We emphasize that a sufficient expected return on the stock requires a continuation of good performance, which is difficult to assess at this stage. The investment involves high risk, which can be realized if the budding growth slows down or is interrupted.