Verve: Patience tested as cash flows continues to lag

On Monday, Verve published preliminary Q4 2025 figures and 2026 guidance, showing a mixed picture. Q4 revenue fell short of guidance and our estimates, but the adjusted EBITDA margin was better than expected at 25%. The update also revealed the loss of a larger client and a year-end cash position suggesting continued FCFF weakness. While the 2026 guidance did not include any notable surprises, we feel that the implied weak Q4 cash flows and the elevated leverage ratio of 3.1x continue to cloud the investment case. Nevertheless, we reiterate our Buy recommendation but lower our target price to SEK 24 (was SEK 26) as we weigh attractive valuation multiples against ongoing execution uncertainties.

Operational rebound in Q4 despite customer headwinds

Verve recorded Q4 revenue of 194 MEUR (+10% y/y like-for-like*, 5% organic), missing the lower end of guidance (551 MEUR vs 560 MEUR) and our estimate (203 MEUR) by -5%. However, adjusted EBITDA reached 48 MEUR with a margin of 25% vs our 19% estimate, driven by platform unification efficiencies. However, the underlying performance in Q4 was tempered by the loss of a larger customer (we estimate a high single-digit % of revenue), which faced financial difficulties in Q4, leading to lower-than-expected revenue contributions, a partial impairment of receivables, and the discontinuation of the business relationship. For 2026, the company expects a moderate to slightly positive market environment and anticipates market growth of around 7-9% in its target markets.  Based on this, Verve guided for 2026 revenues in the range of 680-730 MEUR (17% revenue growth at midpoint, like-for-like) and adjusted EBITDA between 145-175 MEUR (23% margin, midpoint). At the midpoint, this was slightly better on profitability (+1%) but weaker on top line (-2%) relative to our earlier estimates.

Cash position implies continued pressure on free cash flow

Despite encouraging profitability, the cash balance fell 23 MEUR to 89 MEUR (q/q), which raises, yet again, further uncertainties around the cash flows in our view. While management noted that this primarily reflects recent M&A activities (Captify and Acardo), the ending balance implies, based on our calculations, that FCFF remained very weak during the seasonally strong Q4 after adjusting for these investments. Naturally, we do not have the full picture regarding cash flow until the full Q4 release, but based on our calculations, FCFF in Q4 could land between 10-20 MSEK, which is well below the comparison period (Q4’24: 42 MEUR) as well as our estimates. We feel this contradicts management's guidance for notably stronger Q4 cash flows from increased securitization utilization and seasonal benefits. Net debt also increased to 446 MEUR (+35 MEUR q/q), resulting in an adjusted pro forma leverage ratio of 3.1x, which remains above the 1.5-2.5x target.

2026 guidance aims to restore confidence after a subdued 2025

We find the timing of this publication somewhat unusual, given that the 2025 preliminary figures are relatively in line with the guidance provided earlier in the year. However, at the same time, we acknowledge that management likely intends to provide a clear sense of direction and restore investor confidence following a subdued 2025, which was characterized by platform unification challenges and a profit warning earlier in the year. Following the update, we cut our 2026-2027e revenue estimates by -2%, while keeping our adjusted EBITDA estimates largely intact. However, given the continued weak cash flows and, what we feel, increased uncertainty, we lower our 26-27e FCFF estimates by around -7%.

The high-risk/high-reward case remains for now

Based on our updated estimates, Verve trades at an adjusted EV/EBIT of 5x and an EV/FCFF (excl. earn-outs) of 9x for 2026e, which are very low multiples in absolute terms, in relation to peers, and relative to our acceptable valuation range. We feel the management still has a lot to prove, especially on cash flows, before we can rely more on our DCF, which indicates a value of SEK 34 (was SEK 38). Nonetheless, we see meaningful upside should the operational trajectory improve going forward, but our patience is tested.