Sales +9% y-o-y, EBIT +2% y-o-y (+29% vs. ABGSCe)

Modest estimate revisions

17% ’19-‘22e sales CAGR, 13x ‘20e EV/EBIT

Solid quarter, driven by recent project launches
After two consecutive quarters with a lower-than-expected outcome, Avensia ended 2019 with a solid report. While sales of SEK 85m (+9% y-o-y) were -2% vs. ABGSCe, EBIT amounted to SEK 9.7m, 29% above our forecast SEK 7.5m. As such, Avensia delivered positive EBIT y-o-y growth (+2%), even though it has recently ramped up its fixed costs (mostly related to its new office in the Philippines). This was driven by recent project launches, where the company launched at least three larger projects in the quarter. Headcount grew by 17 q-o-q, which was mainly because several previous sub-consultants are now being recognised as employees of Avensia.

Investments in Storefront are positive for several reasons
We make modest estimate revisions after the report. Although Q4 EBIT was higher than our forecast, it should be noted than Avensia increased its capitalised costs during Q4, which had a positive effect on earnings. This mainly relates to its Storefront product, which continues to gain ground, according to the company. While we like the revenue model (high-margin licenses) that the Storefront product carries, we think that the main benefit is that it aids Avensia in winning new contracts, which also (and mostly) involves consultancy revenues.

Good outlook for sales and earnings growth in ’20e
We see good prospects for Avensia to deliver a robust 2020. First, it enters 2020 with several recently launched projects, upon which profitability from them gradually increases. Second, the new opex baseline should now be close to being established, given that the investments into Avensia’s new office in the Philippines should now start to slow down. We forecast 18% sales growth and 40% EBIT growth in 2020. At the current levels, Avensia’s share is trading at 13x ‘20e EV/EBIT.

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