• '24e-'26e ARR cut by 2-3% on continued macro weakness
• B2C business momentum likely to return in H2'24
• EV/ARR ~2x, '24e EV/EBITDA ~11x

What to look for in Q1'24e

For Q1, we expect a reported ARR of SEK 73m and sales of SEK 16.1m. Both of these figures imply y-o-y growth of 4%. We also anticipate an EBITDA of SEK 3.5m, which corresponds to a margin of ~22%, and operating cash flow of SEK ~6m. Given the linearity of the ARR growth and the large share of recurring, fixed revenues, it is unlikely that sales will be more volatile than history suggests.

Estimate changes

We make minor estimate revisions prior to the report: we cut '24e-'26e ARR and EBITDA by 2-3% and 1-3%, respectively, since we believe that the company's growth will be somewhat more muted due to external headwinds that B2C clients continue to face. In the coming years, we expect the launch of Litium App Cloud to increase the company's incremental margins, but we note that this requires a more widespread adoption among clients. We maintain our conviction that the company's long-term prospects are intact, and we continue to believe that the price-competitive offering and focus on fast-growing SMEs will aid the company. Moreover, volume recovery for the company's B2C clients could aid top-line growth without meaningful incremental working capital tie-up or incremental opex.

Valuation

Our revised estimates imply that the company is trading at an EV/ARR multiple of ~2x and at a '24e EV/EBITDA of ~11x, whereas the median Nordic IT services peer is trading at a '24e EV/EBITDA of ~14x.