Equity research Observit, Q3 2023: Good development in profitability and cash flow

Today, Observit published its interim report for Q3 2023. Below is a compilation of our first impressions.

• At the end of Q2 2023, quarterly recurring software revenue (QRR) amounted to SEK 4,5m, corresponding to a growth of approx. 31%. Converted to annual recurring software revenue (ARR), the figure amounted to SEK 18.0m. In our latest analysis update, we anticipated an ARR of approx. 19 MSEK at the end of 2023.
• Net sales for the quarter amounted to SEK 10.2m, corresponding to a growth of 5.7%. Sales was held back by lower hardware revenue. During the first three quarters of the year, net sales amounted to SEK 31.0m. For the full year 2023, we assumed net sales of approx. SEK 47m in our lastest research update.
• The quarter’s EBITDA result amounted to SEK 1.7m. The corresponding figure for the first nine months is SEK 2.4m. In our latest research update, an EBITDA result of approx. SEK 3m (margin of approx. 6%) was expected for the full year, 2023.
• In Q3 2023, free cash flow amounted to SEK 1.6m and during the first three quarters to minus SEK 0.5m. In our latest research update we expected a free cash flow of approx. SEK minus 4m for the full year. At the end of Q3 2023, cash amounted to SEK 2.8m.

Overall, our first impressions are that profitability and cash flow have developed slightly stronger than expected. Revenues are slightly lower than our forecasts for the full year 2023, with the large difference being attributable to hardware. As expected, the company’s cash position is thin. The share is currently down, which at first glance seems unjustified.

Read the initial coverage report here.

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