ARR (including MultiQ Transportation) was SEK145.4m, in line with our expectations. Excluding MultiQ Transport, the organic q/q growth was 4.4% (17% annualized), and the organic y/y growth was 20%. SaaS revenue beat our forecast by 10% and came in higher than the ARR indicated, implying there is still some revenue reclassification left to do. According to management, all unclassified revenue will be classified by Q1 2023 as the new IT systems are fully operational. Thus, we will likely see an ARR boost as we believe, at least, some of the unclassified revenue will be included in the ARR.

Gross Profit beat our forecast by 5%, following a higher gross margin than expected. As OPEX came in below our forecasts, EBITDA and EBIT beat our estimates by 28% and 21%. EBITDA was SEK15.3m (4.1), corresponding to an EBITDA margin of 18.6%, and EBIT was SEK9.0 (1.0), corresponding to an EBIT margin of 11%. While we believed Vertiseit’s margin target for 2024 (30% on the EBITDA level) was optimistic, this quarter’s data supports that target, although SaaS companies typically have strong margins in Q3.

As Vertiseit’s capitalization is roughly equal to its total D&A, we believe EBIT is the most relevant measure currently. Combining the ~20% organic ARR growth with the 11% EBIT margin, Vertiseit reaches an R40 above 30% in the quarter. While stocks are not traded on historical data, we argue that positive EBIT margins and ~20% ARR growth at about 2.1x sales in 2023 constitute an exciting opportunity, especially as we see the potential for further margin improvements. In other words, we believe the sharp uptick in margins lower the downside risk in the case, while the upside potential over the next few years is unchanged.

Despite worries about the state of the consumer, facing high inflation, Vertiseit’s order intake remained at high levels throughout the quarter. While some smaller customers have become more cautious, the larger ones continue to invest at a high level. Overall, the outlook is somewhat more positive than expected and an encouraging signal for 2023.

Dise continues to do well, with the record-high NRR of 110% and impressive CAC/payback of 3.4x months being the quarter’s highlights. The combination of a high NRR and a low CAC/payback, which we have seen in several recent quarters, lays the foundation of a profitable SaaS business. However, as Dise is still a small business, metrics can be volatile between quarters.

With an R12m churn of 5%, a slight increase from 4% in q2, Dise places itself in the middle of its Nordic peers. A significant improvement from the R12m 8% in Q2 2021 that placed Dise among the worst. However, as Dise focuses on its larger customer, we believe NRR is a more interesting metric in Dise current phase. The R12m NRR is ~107%.

We decrease our sales forecast by 6% for 2023e, following lowered estimates on System revenue. This as we expect Vertiseit to stop engaging in new System deals somewhat earlier than before.

Note that while Vertseit excludes the SEK15m in ARR related to MultiQ Transport ITS, we include it all in our forecasts as long as the operations remain in Vertiseit. Thus, we expect the reported ARR to be SEK 15m below our forecast. Also, for our SaaS forecast to make sense, we need to include the SEK15m in our forecasts.

We lower our OPEX forecast for 2023e due to the lower OPEX in the quarter and as we expect slightly higher synergies relative to before. All in all, we raise our EBITDA forecast by 3% while EBIT is flat due to slightly higher D&A.

While the forecast adjustments are not significant, the solid margin in the quarter makes us more confident that Vertiseit will move towards its 30% EBITDA target for year-end 2024. Although, our forecasts remain more defensive, expecting 22% for the full year 2024.

We leave our Base Case at SEK 44 despite increasing the WACC to 8.5% (8), following an increased risk-free rate from 2% to 2.5%. The somewhat higher EBITDA forecast offsets the negative effect of the WACC raise.

Vertiseit is trading below the average and median for both EV/sales and EV/EBIT for 2023/24e. While Vertseit has a lower share of SaaS revenue than the average company, it has a strong position within its niche, and the 15% EBIT margin estimated for 2024e is likely far below its potential levels (and management’s target of >30% on the EBITDA level post-2024). Thus, we believe Vertiseit constitutes an attractive risk/reward at these levels (SEK 30.70).