The important forward-looking ARR came in about 4% higher than we anticipated, as both S&M and SaaS ARR came in higher than expected. The S&M ACV of SEK13m was way above our expectations and much higher than the typical S&M ACV. Although the Landbrugsstyrelsen deal contributed by about SEK 10m, the underlying growth in S&M was also solid. Regarding SaaS ACV, the total of SEK11m beats our forecast of SEK8m. The Private sector had SEK6.5m in ACV, a decent number but below the potential. As in Q3, the ACV from Temenos deals was limited due to cautious banks delaying their buying decisions. However, the SaaS ACV from Public SE was strong, partly due to a large deal with an ACV of SEK3.5m.

Regarding the Banking sector, Lasernet has won its first deals with Thought Machine and Mambu, two fast-growing banking systems. Interestingly, they built the integrations to Lasernet, suggesting they believe Lasernet is a competitive product that strengthens their platforms.

Sales matched our forecast, and following a stronger sales mix than expected, fewer Deliveries and more Licenses, EBIT was SEK 5.7m (15.9), beating our estimate of SEK 3.7m. However, SEK 5.7m and SEK 3.7m are still small numbers, and the difference is negligible. As Formpipe has invested heavily in growth, we currently expect small profits. However, we expect gradual margin improvements during 2023 and onwards and forecast 19.5% in 2025, just under the 20% target.

As all three segments have their own management teams, we do not believe the ongoing CEO change will negatively affect operations. Also, as Christian Sundin is Formpipe’s 10th largest shareholder, we believe he will remain dedicated to the task as interim CEO until a successor is found. Considering that Formpipe is largely on track to its 2025 targets, the new CEO will have time to dig into the business until it is time to set targets for post-2025.

Regarding Deliveries, Public Sweden almost doubled its revenue in Q4 y/y, although from rather low levels. Public DK, on the other hand, suffered from a major product release. While the issues in Public DK might also affect the beginning of 2023, we expect a rebound in Denmark in 2023, along with continued momentum in Sweden.

While the overall sales growth and EBIT in the quarter might not look very impressive, we believe investors should focus on the forward-looking ACV (ARR growth), which was very strong in the quarter, although boosted by the large Landbrugsstyrelsen deal. With the strong ACV that will fuel recurring revenue growth in 2023 and Formpipe’s ambition to hold its net recruitment rather flat, we believe the likelihood of margin expansion in 2023 is very high.

As all three segments have their own management teams, we do not believe the ongoing CEO change will negatively affect operations. Also, as Christian Sundin is Formpipe’s 10th largest shareholder, we believe he will remain dedicated to the task as interim CEO until a successor is found. Considering that Formpipe is largely on track to its 2025 targets, the new CEO will have time to dig into the business until it is time to set targets for post-2025.

In the Q4 report, Formpipe published SaaS ARR data for Lasernet. It shows a SaaS ARR of SEKc80m and a 65% CAGR since late 2020. Along with some S&M revenue, Lasernet likely has a total ARR of SEKc130m. Assuming Private’s EBITDA margin (ex-group functions) of 7% (full-year 2022) is a rough guideline for Lasernet, it has a solid combination of growth and margin. Applying the average EV/S multiple of 5.5x 2022e (Redeye Nordic SaaS peers), Lasernet would be worth SEKc700m, compared to Formpipe’s EV of SEKc1.4bn

We raise our sales forecast by c3% for 2023 and 2024. The increase is primarily due to the strong ACV seen in the quarter and slightly higher SaaS ACV expectations for this and upcoming years, resulting in higher recurring revenues (S&M and SaaS).

We raise the OPEX slightly as well, resulting in a net of c1% and c5% increase in EBIT for 2023 and 2024.

While the new version of the Redeye Rating reduces Formpipe’s rating from 4,5,4 to 4,4,3 (People, Business, Financials), the WACC remains at 8.5%. The new version of the Redeye Rating is more demanding and makes it harder to receive a high rating. Thus, it should not be seen as we believe the underlying quality of Formpipe has decreased.

We raise our Base Case to SEK35 (33) on the back of raised forecasts for recurring revenues. The strong ACV seen in the quarter makes us more confident in the expected gradual margin improvement we expect to start in 2023.

While Formpipe does not look very attractive on EV/EBIT multiples 2022-2023, as Formpipe focuses on growth, investors should focus on EV/Sales. We believe the combination of a rather low EV/sales, decent sales growth potential, and solid margin expansion potential make Formpipe interesting. The 2024 EV/EBIT of 15x gives a hint where the expected margin improvement and decent sales growth make with the EV/EBIT valuation. Also, considering that we believe Formpipe can reach an EBIT margin of almost 20% in 2025, the current EV/S of 3x, is arguable attractive given the company reaches our forecasts or its 20% EBIT margin target.