Invisio reported Q3 revenue of SEK195m which was just above our estimate of SEK193m. Revenue growth for the quarter was 37% YoY and 27% QoQ which was positive to see after some quarters with weaker growth than forecasted. Gross margin came in at 58% (we estimated 60%) which was up slightly YoY and from Q2 2022 despite some extraordinary costs for components.

Opex came in at SEK96m which was also in line with our expectations while EBITDA came in at SEK29m, slightly lower than our estimate of SEK32m due to the lower-than-expected gross margin. The results clearly illustrate the operating leverage in Invisio’s business model with an EBITDA-margin of 15% in Q3 2022 compared with 6% in Q3 2021 and 2% in Q2 2022 which is a trend that we expect to continue in the coming quarters.

Coming to the outlook, the company expects sales to be strong in Q4 2022 and the beginning of 2023 as capacity constraints are gradually eased and deliveries increase. The order intake continues to be strong as well with SEK291m in the quarter and on a rolling twelve-month basis it stood at SEK1,005m putting it above one billion for the first time.

The strong order intake resulted in a new record order book of SEK615m compared to SEK482m in Q2 2022. Looking forward, we expect a continued good order intake in the near term on the back of increased market activities while the longer-term outlook is supported by growing global defence budgets, especially in Europe. The long-term structural demand growth for Invisio's products also continues to be supported by increased awareness of costs related to hearing loss as well as tactical communication getting higher prioritized within the defence.

Overall, Invisio's Q3-report confirms our positive view of the company where we expect strong profit growth in the next years. As illustrated in the charts below we continue to expect a margin improvement back towards normal levels over 2022-24E on the back of strong sales growth. We are forecasting a lower increase of OPEX in 2023-24E because the company has already invested in capacity to manage higher sales volumes and OPEX in relation to sales is heading for historical levels around 30%.

We expect a gross margin of 60%, which is in line with historical levels, although there could be an upside as the company is projecting a long-term level between 60-65%. A potential improvement for the gross margin is also supported by the break-through volume orders for the Intercom product (two orders totalling SEK30m with potential for additional follow-up orders) which has a higher gross margin than Invisio's average. Based on this, our forecast is that the EBITDA margin will rise gradually from 15% in 2022E to 24% in 2023E and 29% in 2024E.

We make limited changes to our estimates on the back of the report. We continue to forecast a topline growth of 23% this year and 27% which is above its target of 20% as these will be catch-up years after the weaker-than-normal growth in 2020 and 2021. As highlighted above, we also expect a margin improvement which will support strong profit growth with EPS increasing from SEK0.8 in 2022E to SEK2.6 in 2023E (growth of 220%) and SEK4.3 in 2024E (growth of 62%).

While our estimates are largely unchanged following the Q3-report we have lowered our valuation as we have increased the discount rate due to higher risk-free interest rate. Below we summarize our assumptions for our valuation scenarios where we have used a WACC of 7.5% (previous 7.0%) which is based on Redeye’s rating model.

Looking at the valuation trend, Invisio contines to trade at a higher than average multiple base on EV/EBITDA while the EV/S multiple is closer to historical average levels. We believe this is fair considering the potential for strong profit growth in the coming years on the back of improved sales growth and margin expansion.