We have earlier stated that 2022 was a transitional year for Heliospectra. Last year was dedicated to product development, cost-savings initiatives, and restructuring to become more robust in 2023 with best-in-class product offerings for Smart Farming. It is intended for this year to mark a turning point. We see some early indications in the Q1 report with well-managed cost control and improved gross margin. Combined with the recent news, expanding the product portfolio with the new MITRA flex, the growth capital injection in April’23 of cSEK22m and the ambition to reach break-even by the end of 2023 boost our confidence in the transition. Yet, order intake in the Q2 report will ultimately judge the market’s reception of the new product offering.

Although we had expected to fully recognize the ENKO order from Q4’22, valued at SEK8.2m, in Q1’23, only 28% of the order value was recognized during that period, leading to lower than anticipated net sales of SEK7.0m, which represented a 26% y/y increase. Nevertheless, we are not overly concerned as we expect the remaining order value to be recognized in Q2’23.

The order intake of SEK1.6m is below our forecast. However, management sees a market where European growers’ investment decisions are often based on various subsidy programs. As these programs end in April and May, many growers await confirmation that the subsidies are secured before making a final investment decision. Therefore, Heliospectra expects a significant order intake during the second quarter. These orders must be shipped and invoiced during Q3’23 or early Q4’23, when its customers will begin using their artificial lighting systems. The market's reception of the new product offering will be ultimately evaluated by the order intake presented in the Q2 report.
The trailing twelve months (TTM) order intake has been positively trending since Q3’22. Thus the low order intake from this quarter naturally set it back slightly. We expect to see a reinforcement of the positive trend from here and a significantly higher order intake in Q2’23.

The reported gross margin of 35% is in line with our expectations and a significant improvement q/q, where the gross margin was 16%. Heliospectra’s business segment is not a high gross margin segment. We anticipate the gross margin to range from 25-45%, depending on the product mix. Heliospectra has lately worked on reducing its production costs. By negotiating directly with A-brand component suppliers and cutting out the go-betweens, the company claims to have reduced its COGS, resulting in higher margins as we move forward.

OPEX (operating expenses) amounted to SEK9.3m, a decrease of c16% y/y. Last year Heliospectra initiated a cost-reduction program. However, the program was introduced in Q1’22, implying that Heliospectra still managed to cut some further costs y/y. The program has consistently yielded positive results during the last four quarters, effectively shaping the company’s cost base.

At the end of the fourth quarter, the cash position was SEK5.6m. However, with the cash injection from the equity issue in April ‘23, we estimate the current cash position to be approximately cSEK22-SEK27m

New, unique product line
On February 23rd, Heliospectra announced an expansion of the product portfolio and the MITRA platform with MITRA Flex, the market’s first available wireless controlled lamp with flexible dark red light. The new solution offers customers three light spectrums in one without losing power, making it suitable for custom and application-based cultivation. The lamp is particularly suitable for plants that benefit from light treatments with a dark red light at the end of the day or the end of production or to ensure a healthy crop all year round, even in seasons with low natural light.

The new solution enables growers to optimize the lighting strategies on daily/hourly basis without losing power in the system. Combined with the Heliocore system, it lets growers create multiple growing zones. According to the company, this will enable growers to increase production and produce healthier crops. Further, the high efficiency of Heliospectra’s LED lamps saves up to 40% compared to the standard HPS solutions used today; the Heliocoresystem can save a further 30% of energy costs by limiting the unnecessary use of artificial light during the day or in specific cultivation zones. The new MITRA flex solution will be commercially available in May 2023.

Permanent CEO appointed
On February 28th, Heliospectra announced that Bonny Heeren had been appointed permanent CEO. Bonny was appointed interim CEO on January 1st, 2022. At the same time, Bonny will also take over as interim CFO from Annika Westlund, who will step down as CFO. To show their belief in Bonny, the three major shareholders have granted him call options as part of an incentives program for 5,000,000 shares with a strike period in H1 2026. According to Bonny Heeren, it represents a significant investment for him.

Rights issue
On Mars 14th, Heliospectra announced a partly secured rights issue of cSEK26m, with a subscription price of SEK1.39 per share. The rights issue primarily intends to finance the launch of the new SMART lighting system on the European market and to expand Heliospectra’s sales and application team in the western parts of Europe. A portion of the raised capital will also cover strategic innovation projects. The rights issue was subscribed to c83%, and Heliospectra obtained SEK22.5m. The rights issue was secured to 77% by the four main owners, corresponding to their pro rata shares. Throughout the right issue, the number of shares will increase by c15.5m, indicating a 15% dilution for nonparticipating shareholders

2022 was a transitional year for Heliospectra, as the company has reworked its strategy and shifted its focus to become a system provider in the field of smart farming, offering a new range of wireless data-driven solutions. As a result, several development projects were completed in ‘22, including an update of the company’s control system helioCORE, a new commercial LED lighting platform - MITRA, the wireless connector Adephi, and most recently, MITRA Flex, a flexible far-red lamp with three spectra in one. The company has also undergone a structural change to reduce costs. The result is a more focused, streamlined company with a competitive smart offering that puts the customer’s needs first. The company is ready to take on the European market as the trend towards commercial greenhouse cultivation gains momentum.

As a result of the new sales strategy with partner sales in the US and Canada, we expect sales from these markets to decrease in importance in favour of in-house sales from the European market going forward. Focus is now on the European greenhouse market, with a particular focus on the ornamental market (cut flowers and potted plants) and leafy greens and herbs. Two segments that the company assesses are very suitable for its Heliocore and MITRA platform. We expect the gross margin on non-European sales to decline due to revenue share with partners.

The lighting season in the Northern Hemisphere begins after the summer, meaning our expectations on H1’23 are modest. Yet, our expectations for the order intake in Q2 are high due to the relatively long delivery times (10 weeks). If customers want their order delivered before the lighting season begins, they must place orders by the end of June. Hence, we expect sales to pick up in H2’23 and expect a strong year-end.

Adding three new board members instils confidence in Heliospectra’s transformation journey. Peter Klapwijk, Robert Ekström, and Ofelia Madsen, the proposed board members, bring valuable expertise to the board. Specifically, their extensive knowledge in the European greenhouse cultivation sector, Software as a Service (SaaS), and global supply chain procurement will be essential assets to the company.

Heliospectra expects to finish 2023 in a breakeven situation. We take a more modest approach. Our forecast implies that Heliospectra will reach breakeven in 2025. Considering the seasonality of the business, with a weaker H1 followed by a substantially stronger H2, we expect to see quarterly breakeven results prior to 2025. Nevertheless, we estimate Heliospectra will achieve full-year breakeven in 2025.

Following the Q1’23 report, we trimmed our forecast for Q2’23, lowering our topline expectations. The first half of 2023 is expected to be soft, with a stronger H2 to follow. Thus, we still expect significant growth as of H2’23, when the new product offering has started gaining traction in the market. The tables below summarise our forecast changes and forecast ’23e-‘25e.

Our valuation remains intact, with a Base case fair value of around SEK 1.9 per share. This is based on the financial forecasts in the table above and long-term assumptions outlined in the table below, including: