Sales flat y-o-y, although order book rose 29%

’19e-’21e sales up 8% on the order book

Funding risk remains

Sales slightly below our forecast
Since this was Artificial Solutions’ (AS) first quarter as a listed company, and no historical quarterly numbers have been given, our expectations into the quarter were somewhat cloudy. Even so, AS reported sales of SEK 12.6m, which was -4% below our forecast of SEK 13.1m. The order intake amounted to SEK 16.8m, down 9% y-o-y, though the order book rose by 29% to SEK 40.8m. We believe that the discrepancy between these two metrics stems from: 1) the ongoing shift in the business model, whereas AS has increased its usage of partners (partner sales were up 88% y-o-y), and 2) tough comps, as reported by management.

Scopes for growth in Asia
Although sales roughly aligned with our forecast, earnings came in softer. This was a function of both higher opex and some non-recurring items. The latter comprised goodwill amortisation of SEK 22.1m as well as SEK 4.1m relating to the reversed acquisition (i.e. the listing). Furthermore, the company has recently opened up a new office in Singapore. Short term, we believe it will entail additional costs; therefore, we raised our opex assumptions, but we like management’s optimism of sales contribution from this region already in 2019. Although we increase sales by 8% on the back of the solid order book, we lower our ’19e-’21e EBIT because of the higher opex. In absolute terms, however, the change is relatively small.

Well-positioned in a rapidly growing market
Despite that the share price has plunged recently, we think the long-term story remains. The market for conversational AI is expected to exhibit rapid growth ahead (~50% CAGR), in which we believe that AI possesses an attractive position. Nevertheless, the company remains cash flow negative and had SEK 9.6m in cash by the quarter’s end, making the funding a prioritised matter in the shorter term.

info@introduce.se (Introduce.se)

ABG Sundal Collier - Introduce.se