Better revenues and earnings than Proact expected

System sales surprised positively, cloud more cautious

Adj. EBITA +5-14%, share trades at 7.5x ‘21e EV/EBITA

Q2 better than expected
Last Thursday Proact announced that it anticipates Q2 earnings to be better than consensus. More specifically, Proact sees Q2 sales rising more than 15% y-o-y, and adj. EBITA more than 20% y-o-y. System sales during the quarter were better than expected despite the ongoing pandemic, but Proact also sees strong revenue growth in both recurring and consulting services. New sales of cloud services, however, are expected to decline y-o-y. The positive development is partly driven by new, pandemic-driven needs from Proact’s customers, but it is also an effect of easy comps following a weak Q2’19, in our view. Improvements in Business Unit West (Germany and Netherlands primarily) continue and support an underlying progress. Growth figures are positively affected by the acquisition of PeopleWare in Q4’19. The full report is expected on 15 July.

Adj. EBITA +5-14%
We raise our sales and adj. EBITA estimates by 6-7% and 5-14%, respectively. For Q2, we estimate 16% sales growth ( 7% organic) with an adj. EBITA of SEK 45m, up 23% y-o-y at a margin of 4.8% (4.6% in Q2’19). We have reduced our new cloud sales estimates somewhat. Even though Proact is expected to report a +20% adj. EBITA growth in Q2’20e, we note that our estimate is still 18% below Q2’18, showing the weakness in the comparable period (Q2’19, where adj. EBITA fell -33% y-o-y). We find it encouraging that Proact has commented on underlying improvements in Germany and the Netherlands, as these could continue to drive solid earnings growth throughout 2020e. We estimate adj. EBITA growing 9% in 2020e.

Share at a 13% discount to historical average
On our revised estimates, the share is trading at 7.5x ‘21e EV/EBITA, a 13% discount vs. the historical average of 8.6x during ’16-’19.

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