During the fourth quarter, Ngenic experienced solid sales growth and received a substantial follow-up order worth SEK21.5m from Tibber. The company also signed partnership agreements with several Energy and installation companies. Furthermore, the company reported an increasing interest in its Tune Highrise, a system used to control heating systems in properties, which, according to the company, results in energy savings by around 6 - 17%. Moreover, installations on the single-family-house side increased by 102% y/y. In contrast, this number was 451% in Q3 2022. The company explained the large difference in Installation rate as an effect of Q4 2021 being a very strong quarter in terms of deliveries while Q4 2022 was impacted by limited deliveries from subcontractors. Nevertheless, the company has secured and stocked up on components, indicating that sales will ramp up in 2023 as indicated by the strong order book of around cSEK44m at the end of 2022.

Ngenic is also noticing a rising interest in flexibility services as the installed base expands. This is encouraging as it indicates that the company is closing in on its ultimate goal and establish itself as an aggregator. While the value of flexibility services is unknown, the company estimate that the Swedish market for customer flexibility to be worth several billion SEK per year. Ngenic is therefore collaborating with energy companies to establish its role and realize customer flexibility. This effort is expected to generate a new source of revenue for Ngenic in 2023. We believe this is important as it will indicate the potential of the flexibility service later this year.

In conclusion, Ngenic is continuing on its trodden path, receiving more orders and expanding its installed base, signing new partnerships, and working with energy companies to establish its role as an aggregator. The company’s strategy is clear, and the increased interest in Ngenic’s flexibility service is encouraging, suggesting that it is making further progress towards its goal.

Net sales came in at SEK8.3m (8.1), growing 3% y/y and 21% q/q. This is a slight deviation of only -3% from our projections. Although the y/y sales growth may appear relatively slow compared to the previous quarters this year, we understand that the company suffered from limited deliveries from subcontractors during the quarter. Furthermore, the company received revenues from some larger projects in Q4 2021, which may have further distorted this comparison number.

The robust sequential growth was mainly driven by the surge in hardware sales, which increased from cSEK4.7m in Q3 2022 to cSEK5.7m in Q4 2022, accounting for 68% of total sales. Subscription sales showed a c10% increase, while service and project revenues grew by c45% q/q.

Ngenic’s gross profit for the period was SEK3.8m, resulting in a gross margin of 49% (48%), which was considerably lower than our estimate of 77%. However, the company explained that it is securing components to reduce the gap between supply and demand and that these costs have been accounted for in the quarter. Additionally, we anticipate that the gross margin will improve as the proportion of revenue from subscriptions increases.

EBITDA was -SEK7.5m, which translates into a margin of -84%. This was significantly lower than our expectations of -SEK2m. The deviation can be attributed to Ngenic's significant investments in the quarter, aimed at expanding the company's capacity. This is reflected by the increase in its operating expenses, particularly personnel cost which amounted to SEK9.3m, an increase of c49% from the previous quarter (cSEK6.3m). This has led to temporarily depressed margins. Nonetheless, Ngenic's management has stated that its investments during the fourth quarter will yield results in H1 2023

In 2022 the average cost of 1 kWh on the electricity market in Sweden was 1.1kr.  However. there were significant price variations across Sweden's four electricity areas, with the most significant difference between SE1 (North of Sweden) at 0.6kr per kWh compared to 1.6kr per kWh in SE4 (South of Sweden), a staggering difference of c155%.

Determining the electricity price in Sweden is a complex process, influenced by various underlying factors such as production capacity, grid capacity, weather conditions, government policies, and market forces. This complexity is further compounded by the price increase of natural gas after the war in Ukraine, resulting in countries increasing their use of other fossil fuels, thereby driving up costs further.

Ngenic's technology can benefit consumers, energy providers and grid operators. By optimizing energy usage, Ngenic's system can reduce overall energy demand, which has the potential to balance the energy grid. Specifically, by reducing consumption during peak loads, the system can alleviate strain on the energy grid, which is particularly important during periods of high energy usage. These benefits can result in reduced energy costs for energy companies and consumers, more stable and reliable energy supplies, and a more efficient and sustainable energy system overall.

Several policy initiatives work in Ngenic’s favour to become an aggregator. For example, The EU Energy Directive with the target to improve energy efficiency by 32.5% until 2030 was tightened in October 2022. In addition to the initial target, all member states must ensure that additional consumption reduction and energy efficiency measures of at least 10% are made during winter and reduce peak loads by 5%.  By optimizing energy consumption, Ngenic's system can help to increase the overall efficiency of the energy system. This can benefit energy providers and grid operators and reduce their costs, while also contributing to a more sustainable energy system and operating in line with the EU Energy Directive. Moreover, Ngenic has stated that customers who have installed Tune and Tune Highrise automatically follow the decision of the European Commission. As Ngenic's customer base continues to grow and more data is collected, this development is further encouraging, as we believe it strengthens Ngenic's position to assume the role of an aggregator.

On 24 October, Ngenic announced it had started a collaboration with Elskling, a company providing comparison services for electricity contracts. Through the partnership, Elskling will sell Ngenic Tune and Track via its online store. Ngenic is continually adding partners to supply its customers with products for energy efficiency.

On 9 November, Ngenic announced it has been awarded a framework agreement as one of the selected suppliers in HBV’s (Husbyggnadsvaror HBV Förening) procurement of IMD products for a maximum of four years. The total framework agreement value comes to a maximum of SEK30m during the agreement period. HBV carries out coordinated procurements for goods and services associated with the construction, renovation, and management of properties. We are encouraged by the agreement as it expands Ngenic’s reach within IMD – a segment we believe consider highly competitive.

On 29 November, Ngenic announced a partnership with Kraftringen. The energy company will offer Ngenic Tune and Track to customers using an electric boiler/heat pump, plus Ngenic Tune and the installation of the hardware to customers with district heating. By using Ngenic’s hardware, a share of the consumption can be moved to hours when electricity prices are lower. This in turn reduces energy costs if Tune is used in combination with Kraftringen’s hourly rate agreement.

On 13 December, Ngenic announced it had signed a partnership with Sollentuna Ehandel, a local energy and environmental company owned by the municipality of Sollentuna. The company develops, builds, and maintains infrastructure for sustainable deliveries of electricity and district heating, among other services. Customers of Sollentuna Ehandel can purchase Ngenic Tune and Track for a fixed price plus an additional monthly subscription fee for a minimum of five years.

On 21 December, Ngenic announced that it together with 16 partners from nine different countries, has been awarded SEK60m to promote the development and establishment of energy communities. This initiative aims to promote sustainable energy systems by enabling all participants to contribute to the transition to a sustainable energy system. The project will run from January 1, 2023, to June 30, 2026.

On 7 February, Ngenic announced it has partnered with Stockholm Exergi, a Swedish energy company providing district heating to 800,000 customers in the Stockholm region. As part of this collaboration, single-family home customers of Stockholm Exergi are being offered to buy Ngenic's hardware at a reduced cost, to optimize energy usage and lower electricity expenses. This could increase Stockholm Exergi's operational efficiency, resulting in lower overall energy expenses.

Ngenic’s cash flow for the period was -SEK10.5m resulting in a cash position of cSEK10.8m at the end of the year. While this might cause concern at first glance, it's important to note that the company made significant investments during the quarter to increase its capacity. According to management, this will have a positive impact in H1 2023. Furthermore, Ngenic has made progress in paying off its debt during the year, with a total of cSEK10m paid off in 2022, including cSEK6m in Q4. As a result, we estimate the company's long-term debt to be around cSEK4m at the end of 2022. When factoring in the company's unused checking account credit of SEK2.5m the total amount of cash and equivalents it held at the end of the year was c13.3m. With its current cash burn, the company would run out of money during Q3 2023. However, management has stated that the current cash and equivalents will be sufficient to finance operations for the next twelve months, based on the existing budget and expected growth, which is reassuring.

To summarize, Ngenic has undertaken large investments in Q4 2022 which according to management will start to pay off in H1 2023. We believe this to be supported by the solid order book which stood at cSEK44m at the end of the year. In addition, we believe that Ngenic has a strong Operating leverage supported by the increasing demand for its products, even after raising its prices. This demonstrates the company's ability to maintain a favourable pricing strategy while attracting new customers. Moreover, Management's optimistic outlook along with its confidence to finance operations for at least the next twelve months without a cash injection is indeed a positive sign. Hence, we do not factor external financing into our projections. However, we will monitor the company’s expenses and margin expansion and are likely to adjust our projections in response to future developments.

As a result of the report we make only minor adjustments to our estimates as presented below.

Presented below is our forecast for Ngenic in 2023.

Ngenic is continuing on its trodden path, receiving more orders and expanding its installed base, signing new partnerships, and working with energy companies to establish its role as an aggregator. The company’s strategy is clear, and the increased interest in Ngenic’s flexibility service is encouraging, suggesting that it is making further progress towards its goal. As a result of Ngenic’s Q4 2022 report, we maintain our fair value range and base case, while recognizing that the company's cash balance was cSEK11m at year-end.

We derive our fair value range from a fundamental DCF framework for three scenarios, base case (most likely), bear case (pessimistic), and bull case (optimistic), using a WACC of 13% across all scenarios. Our fair value range is SEK13–51, and our base case is SEK26. The fair value range is wide, owing to the unpredictable nature of Ngenic’s long-term growth and profitability.