Translation: Original comment published in Finnish on 2/20/2024 at 6:45 am EET.

Tecnotree will publish its Q4 report on Thursday at around 9.00 am EET. We expect the company's growth to have continued at a double-digit pace, but the result to be slightly below the comparison period. We expect the company's accounts receivable collection in Q4 to have improved from prior quarters, in line with the company's cash flow guidance. Our interest in the report is, of course, the outlook, with a particular focus on potential cash flow guidance, which should indicate improving cash flow as the company's business gradually moves more towards an ARR model. In the report, we are also interested in the status of missing payments on the company's convertible bonds.

Growth continued at a brisk pace towards the end of the year

Tecnotree has guided for revenue growth of 9-13% in 2023 and our full-year forecast is for 10% growth. For Q4, this would mean an increase of about 12% and a revenue of 22.5 MEUR. The growth is supported by a very strong order book (Q3'23: 78.0 MEUR) and new business through the CognitiveScale acquisition. We estimate that the demand outlook has remained reasonably good, although we believe that the company's operator customers are more cautious about undertaking major technology transformations. In the first half of 2023, Tecnotree also saw a clear slowdown in order flow (H1'23: 32 MEUR, -30%), but then in Q3 order flow was again at a strong level (Q3'23: EUR 31, +34%).

We expect a slight year-on-year deterioration in results

Tecnotree has guided for a 15-20% year-on-year increase in EBIT in 2023 and our forecast is for 17.5% growth. For Q4, this would mean an EBIT of 5.5 MEUR (Q4'22: 6.1 MEUR), corresponding to an EBIT margin of 24.6% (Q4'22: 30.4%). The company has signaled that cost inflation will put pressure on Q4 and we expect the result to be slightly weaker than in the comparison period. It is noteworthy that even at the upper end of the guidance range, EBIT (6.0 MEUR) would be slightly lower than in the comparison period. On the other hand, the company has taken cost-saving measures in response to cost inflation. The growth in revenue also supports profitability through high gross margins. As in the comparison period, we expect EPS to round up to EUR 0.01. We note that there are always challenges in forecasting FX rates and withholding tax positions, which creates uncertainty in the forecasting of the bottom lines of the income statement. The Nigerian naira and Argentine peso continued to depreciate towards the end of the year, which may increase financing costs (as in Q2'23).

In addition to the result, we will monitor the development of cash flow. The company has guided for a 12-14% increase in cash collections in 2023 compared to 2022. For the first nine months, the company was behind last year's pace in terms of cash flow (43.4 MEUR vs. 47.7 MEUR). We therefore expect cash flow for the rest of the year to be strong after a weak Q3, when cash flow was weak due to delivery delays. The company has commented that the devaluation of the Nigerian naira is causing some payment delays, which poses certain risks to cash flow.

Focus on cash collection outlook

Our current forecasts expect Tecnotree's revenue to grow by 7% this year to 84.3 MEUR and EBIT to improve to 22.4 MEUR (26.6% of revenue). In terms of earnings growth, it is good to note that we expect the company's depreciation level to rise clearly as a result of the significant investments made in recent years, and we expect EBITDA to grow significantly faster than EBIT. In recent years, Tecnotree's performance has been poorly reflected in cash flow, and the outlook will be particularly interesting if the company provides guidance on cash flow for this year as well. Tecnotree is actively seeking to change its business model to an annual recurring revenue (ARR) model, which should balance revenue and cash flow between quarters. It will therefore be interesting to see whether the change in the business model will be reflected in the cash flows already in 2024. However, we do not believe that this change will significantly address the challenges posed by the geographic location of the company's customers. The continued devaluation of the Nigerian naira early this year could pose further risks to cash flow repatriation this year. In the report we are also interested in the situation of the company's convertible bonds. It is known that the company will collect the 20 MEUR transferred to Fitzroy Investments later, but in addition to this, the company still had about 9 MEUR to collect in Q3. Of course, more detailed comments on the possible uses of the capital are again of interest.

Tecnotree will publish its Q4 report on Thursday at around 9.00 am EET. We expect the company's growth to have continued at a double-digit pace, but the result to be slightly below the comparison period. We expect the company's accounts receivable collection in Q4 to have improved from prior quarters, in line with the company's cash flow guidance. Our interest in the report is, of course, the outlook, with a particular focus on potential cash flow guidance, which should indicate improving cash flow as the company's business gradually moves more towards an ARR model. In the report, we are also interested in the status of missing payments on the company's convertible bonds.

Growth continued at a brisk pace towards the end of the year

Tecnotree has guided for revenue growth of 9-13% in 2023 and our full-year forecast is for 10% growth. For Q4, this would mean an increase of about 12% and a revenue of 22.5 MEUR. The growth is supported by a very strong order book (Q3'23: 78.0 MEUR) and new business through the CognitiveScale acquisition. We estimate that the demand outlook has remained reasonably good, although we believe that the company's operator customers are more cautious about undertaking major technology transformations. In the first half of 2023, Tecnotree also saw a clear slowdown in order flow (H1'23: 32 MEUR, -30%), but then in Q3 order flow was again at a strong level (Q3'23: EUR 31, +34%).

We expect a slight year-on-year deterioration in results

Tecnotree has guided for a 15-20% year-on-year increase in EBIT in 2023 and our forecast is for 17.5% growth. For Q4, this would mean an EBIT of 5.5 MEUR (Q4'22: 6.1 MEUR), corresponding to an EBIT margin of 24.6% (Q4'22: 30.4%). The company has signaled that cost inflation will put pressure on Q4 and we expect the result to be slightly weaker than in the comparison period. It is noteworthy that even at the upper end of the guidance range, EBIT (6.0 MEUR) would be slightly lower than in the comparison period. On the other hand, the company has taken cost-saving measures in response to cost inflation. The growth in revenue also supports profitability through high gross margins. As in the comparison period, we expect EPS to round up to EUR 0.01. We note that there are always challenges in forecasting FX rates and withholding tax positions, which creates uncertainty in the forecasting of the bottom lines of the income statement. The Nigerian naira and Argentine peso continued to depreciate towards the end of the year, which may increase financing costs (as in Q2'23).

In addition to the result, we will monitor the development of cash flow. The company has guided for a 12-14% increase in cash collections in 2023 compared to 2022. For the first nine months, the company was behind last year's pace in terms of cash flow (43.4 MEUR vs. 47.7 MEUR). We therefore expect cash flow for the rest of the year to be strong after a weak Q3, when cash flow was weak due to delivery delays. The company has commented that the devaluation of the Nigerian naira is causing some payment delays, which poses certain risks to cash flow.

Focus on cash collection outlook

Our current forecasts expect Tecnotree's revenue to grow by 7% this year to 84.3 MEUR and EBIT to improve to 22.4 MEUR (26.6% of revenue). In terms of earnings growth, it is good to note that we expect the company's depreciation level to rise clearly as a result of the significant investments made in recent years, and we expect EBITDA to grow significantly faster than EBIT. In recent years, Tecnotree's performance has been poorly reflected in cash flow, and the outlook will be particularly interesting if the company provides guidance on cash flow for this year as well. Tecnotree is actively seeking to change its business model to an annual recurring revenue (ARR) model, which should balance revenue and cash flow between quarters. It will therefore be interesting to see whether the change in the business model will be reflected in the cash flows already in 2024. However, we do not believe that this change will significantly address the challenges posed by the geographic location of the company's customers. The continued devaluation of the Nigerian naira early this year could pose further risks to cash flow repatriation this year. In the report we are also interested in the situation of the company's convertible bonds. It is known that the company will collect the 20 MEUR transferred to Fitzroy Investments later, but in addition to this, the company still had about 9 MEUR to collect in Q3. Of course, more detailed comments on the possible uses of the capital are again of interest.