Innofactor Q1 on Tuesday: We expect moderate earnings growth

Translation: Original comment published in Finnish on 4/20/2023 at 6:49 am.

Innofactor will publish its Q1 report on Tuesday at 9:00 am EET. The end of last year was good for Innofactor, which increased confidence in this year. We expect Innofactor's net sales to grow strongly organically and supported by the acquisition. We estimate that profitability will decrease slightly from a strong comparison period. As a result of general customer uncertainty in the market, interest in the sector is directed more on market comments than usual.

We expect continued strong growth supported by the acquisition

The company’s H2 and especially Q4 were operationally good and in terms of the order backlog, which increased confidence in the short term. However, general customer demand in the market currently involves uncertainty, which can also be reflected in Innofactor. We estimate that Innofactor's net sales increased by 16% to EUR 29.7 million in Q1 driven by organic growth (10 percentage points) and supported by the Invenco acquisition. In addition, we monitor the development of materials and services and net sales per employee, which indicate whether organic growth was driven by subcontracting or own billable utilization. This, in turn, has a significant impact on the profitability trend.

We expect that profitability decreases slightly from a strong comparison period

We estimate that EBITDA was EUR 2.2 million or 10.9% of net sales in Q1 (Q1’22: 12.0%). Thus, we expect that EBITDA has increased by 5%. Our estimates assume that project management has remained good and that part of organic growth is supported by lower margin subcontracting. Moreover, wage inflation creates headwind. There are no major changes in other result lines; depreciation EUR 0.1 million higher than in the comparison period and financial expenses slightly lower. We estimate that EPS has increased by one cent to EUR 0.03 in Q1.

Innofactor performed well in late 2022 but there is uncertainty in the market

As usual, Innofactor’s guidance indicates that net sales and EBITDA will grow from the year before. With the Q4 report, confidence increased in the current year. Ahead of the Q1 report, we expect that supported by the Invenco acquisition Innofactor's net sales will grow by 10% to EUR 78 million in 2023 (organic 5%) and EBITDA will reach EUR 8.6 million (11.1% of net sales, 2022: 7.8 MEUR).

With the economic situation, uncertainty about customer demand is, however, elevated in 2023, even though the sector as a whole performed nicely in 2022 despite the uncertainty . Thus, we are more interested than usual in the market comments of the entire sector in Q1.