New customer agreements likely to drive Q3 sales

Q3’19e sales of SEK 66m and EBIT margin of 6.2%

E-commerce should be a supportive end-market niche

Q2’19: a recap
Avensia’s Q2 report was below our expectations, as was the case for many other IT service companies, on the back of a negative calendar effect and generally softer demand for IT services. Furthermore, we believe that Avensia’s financials in Q2 were burdened by the company’s recent product launches (updated Storefront portfolio), which likely hampered product (software) sales in the quarter.

Q3e details: sales of SEK 66m and EBIT of SEK 4m
Even so, Avensia had some positive news in conjunction with its Q2 report, stating that several new customer agreements were to be initiated in Q3’19. We forecast this to entail Q3’19e sales of SEK 66m, up 22% y-o-y, for an EBIT of SEK 4m, representing a margin of 6.2%. For FY‘19e, we estimate EBIT of SEK 31m, which we have reduced by 3% due to a slightly more cautious view on the IT services market. In H1’19, Avensia reported a relatively low net recruitment rate (+11 employees), although this stands in contrast with the high levels in 2018. With the company’s trainee programme starting in Q3, we forecast headcount to increase by 12 in the quarter.

20% ’18-’21e sales CAGR, 11x ’20e EV/EBIT
Even if demand for IT services were to decline, we argue that the combination of a strong financial track record and expertise in a growing niche (e-commerce) should be supportive for Avensia’s operations. In addition, we anticipate that the software element should give further assistance to margins. We estimate that software (Storefront) currently accounts for ~5% of net sales, and is margin-accretive. On our revised estimates, the Avensia share is trading at 11x ’20e EV/EBIT.

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