Unimpressive Q3’21, heavy on low-margin projects

Supply constraints likely to delay margin acceleration

Fair value range lowered to SEK 8-47 (9-50)

Unimpressive Q3’21, hurting liquidity
Q3’21 saw decent revenues of SEK 50m (ABGSCe 39m, FactSet cons. 68m), but due to ongoing supply chain issues (lack of components and employees) the converted projects were largely engineering-heavy, leading to a lower margin vs. projects that are product-heavy. We therefore saw a gross profit margin of 20.3% (ABGSCe 25%, cons. 25.9%). The order backlog trend was, furthermore, unimpressive, standing stable q-o-q at SEK 331m, with an estimated engineering/product split of 70/30, which is a negative compared to last year’s split, which we estimate was around 60/40.

Strong order backlog, but unable to convert
Due to the ongoing operational constraints with the sourcing of components (especially DRAM) and hiring qualified employees, combined with a backlog that is very heavy on engineering (low-margin), GomSpace is simply unable to convert the backlog at the intended pace. Therefore, we expect that the initially intended margin acceleration will likely be postponed ~1FY. We expect to see a FY’22 that will be solid on revenue growth, albeit that the projects that it will likely be able to convert will be more engineering-heavy than initially expected. We therefore now expect an FY’22 gross margin of 25.4% (36%) vs. FactSet cons 39% and a FY’23 gross margin of 35% (43.2%) vs. FactSet cons. of 45%.

H2’22e should be a turning point
With the supply chain challenges likely not improving before H2’22, we incorporate the assumption that the near-term margin acceleration will be postponed ~1FY in all three scenarios, with scenario 1’s FY’21-23 avg. EBITDA margin decreasing to 8% (12%), scenario 2’s to 12% (18%) and scenario 3’s to 18% (24%). Based on our changed estimates, we update our fair value range to SEK 8-47 (9-50).

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