Q2 sales hurt by weak Q1 order book

+11% on our ’19e-’21e sales

Share trading at 1.3x EV/sales on ’20e

Q2 sales +SEK 2.2m vs ABGSCe
Due to a weak outgoing order book in Q1 (SEK 2.4m), Q2 net sales decreased by 62% y-o-y, coming in at SEK 5.6m. Even so, this was SEK 2.2m (64%) above our forecast of SEK 3.4m. Opex contained few surprises, but the lower sales versus Q2’18 resulted in an EBIT beat of SEK 0.9m (ABGSCe SEK -2.9m). We also find it encouraging that MODI once again reported sequential growth in its order book, amounting to SEK 8.6m by the end of Q2. According to the company, the Q1 problem related to an external party’s installation of MODI products, which led to some order cancellations, has now been resolved.

Increased sales estimates on a healthy order book
Besides the above-mentioned issue, we also believe that sales during H1’19 have been hampered by an internal (albeit temporary) focus on educating recently hired sales personnel. Because MODI is a small company with a headcount of 14, this matters, and we believe that the new sales people are now fully operational. In light of this, and Q2’s healthy order intake of SEK 12m, we lift our ’19e-’21e sales forecast by 11%. Our corresponding EBIT revision appears large in percentage terms, but is significantly smaller in absolute numbers.

’17-’21e sales CAGR of 15%, 1.3x ’20e EV/sales
The share is down 45% YTD, and we believe that a meagre H1’19 is the main explanation for the depreciation. In H2’19, however, we note that MODI is facing significantly easier comps. We therefore anticipate that sales growth and earnings metrics will rebound. The company has proven itself commercially in recent years, and we continue to forecast sales growth in ’20e-’21e, representing a ’17-’21e sales CAGR of 15%. On our revised estimates, the share is trading at 1.2x-1.7x EV/sales on ’19e-’21e.

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