Invisio: Record order intake support positive outlook

Research Update



Redeye updates on Invisio post Q2-results which came in lower-than-expected owing to soft deliveries during the quarter. However, the order intake reached new record levels and the outlook remains strong. We make limited changes to our estimates and valuation range.



Hjalmar Ahlberg

John Westborg

Soft deliveries in Q2, strong outlook for Q3

Invisio continued to see strong YoY growth in Q2 with a revenue increase of 76%, although the outcome was below our forecast owing to lower-than-expected deliveries during the quarter. Deliveries are difficult to predict on a quarterly basis and while Q2 came in lower than expected, the strong inventory build-up suggests Q3 deliveries are set to be strong, and we have made limited changes to our full-year topline forecast.

Record order intake

The company saw a record order intake during the quarter which summed up to SEK402m driven by two large announced orders to Racal (total value cSEK220m) as well as a steady flow of smaller unannounced orders (total c182m). With an orderbook of SEK790m of which the majority is expected to be delivered during 2023 the outlook for Q3 and Q4 is strong.

Limited changes to estimates

While Invisio’s Q2-results were lower than forecasted, the outlook for the rest of 2023 and beyond remains strong and we make limited changes to our estimates. Our valuation range remains unchanged where the base case stands at SEK260. This implies an EV/EBITDA of 37x on 2023E and 31x on 2024E forecasts, while the five-year average has been 30x NTM EV/EBITDA (range of 20-50x).

Key financials

Revenue Growth11.5%30.8%53.7%13.6%15.0%
EBIT Margin4.2%8.4%21.4%23.0%26.6%
Net Income14.344.3181.9233.4310.9

Soft deliveries in Q2, strong outlook for Q3

Invisio reported revenue of SEK270m for Q2 2023 which was c10% below our forecast of SEK300m owing to lower deliveries than expected. The company comments that deliveries are always made in line with customer needs and wishes, which can impact sales on a quarterly basis. Looking into Q3, high inventories of SEK196m compared to SEK148m in Q2 2023 suggests potential for strong deliveries in the coming quarters. Owing to the lower-than-expected sales, EBITDA came in c24% below our forecast. The gross margin was solid at 60.5% while total opex of SEK118m was somewhat above our forecast of SEK113m. The table below summarize our estimates and the outcome for Q2 2023E.

Invisio results outcome
SEKmQ2 22Q3 22Q4 22Q1 23Q2 23EQ2 23ADiff
EPS (SEK)-0.170.300.951.331.100.60-45%
Sales growth-0.4%36.7%90.0%126.6%95.0%75.5%n.a.
Gross margin57.5%58.1%57.4%62.5%60.0%60.5%n.a.
EBITDA margin2.1%15.0%25.0%31.0%26.7%22.4%n.a.
EBIT margin-5.4%9.0%20.7%26.9%22.3%16.8%n.a.
Source: Redeye Research

Record order intake

Invisio continued to see strong demand with a new record order intake of SEK402m for the quarter (we expected around SEK300m) and on a rolling twelve months basis the order intake was SEK1.3bn. The strong order intake was supported by a high volume of unannounced orders (totalling c SEK182m) and Racal which generated Invisio’s largest order ever for SEK130m from the US Department of Defence as well as an order worth SEK90m from a European NATO country. Most of the deliveries for both orders are expected to be delivered during 2023 and Invisio furthermore states that the majority of its orderbook of SEK190m is expected to be deliver during 2023. Additionally, the company maintains its positive outlook expecting strong sales, order intake and profitability for 2023. The longer-term outlook is positive as well with growing defence spending which is likely to remain high for a long time to come.

Invisio: Order intake Q1 2021 - Q2 2023

Limited estimate changes

While Invisio’s Q2-results came in somewhat lower than expected, the outlook for the rest of 2023 and beyond remains bright. We expect deliveries to be strong in Q3 which should offset the lower-than-expected levels seen in Q2 and we slightly raise our 2023E topline forecast with 2%. With potential for continued strong order intake we have also slighty increased our 2024-25E revenue forecast with c4%. However, cost growth was also somewhat higher than expected in Q2 and we have increased our cost assumptions as well which results in EBITDA being largely unchanged for 2023-25E. We still see potential for the company to expand profitability as topline growth should be higher than cost growth.

Invisio: Revenue, opex and profitability 2018-25E

Invisio key financials 2019-25E
SEKm2019202020212022Q1 23Q2 23Q3 23EQ4 23E2023E2024E2025E
Growth Y/Y (%)45%4%11%31%127%76%50%10%54%14%15%
Gross profit313309340450195163176191724812934
Gross margin, %61%58%57%58%62%61%60%60%61%60%60%
EBITDA (%)28%20%12%15%31%22%24%27%26%27%31%
Total opex-181-214-316-385-111-118-119-121-469-501-520
EBIT (%)26%18%4%8%27%17%19%22%21%23%27%
Source: Redeye Research

Unchanged valuation range

With limited changes to estimate our valuation range is unchanged where the base case of SEK260 while the bull case stands at SEK400 and the bear cast at SEK140. Our base case implies an EV/EBITDA of 37x on 2023E and 31x on 2024E forecasts, while the five-year average has been 30x NTM EV/EBITDA (range of 20-50x).


Source: Factset

Investment thesis


Market leader in niche market with high barriers of entry

Invisio dominates a niche market with high barriers of entry that is growing structurally from greater awareness of the costs of hearing loss and increased radio penetration. The market is characterized by large procurements with framework agreements that can run over several years. With several procurements won over the last decade the company has established a strong position in North American and European defense customers. Ongoing modernization programs supports continued growth from established customers while Invisio also aims to increase the customer base among other in new segments such as the police market. The company has also been successful adding growing its products offer with more headsets as well as peripherals such as cables and the Intercom solution. Overall, this creates a strong growth outlook over many years which supports Invisio’s growth target of 20% average annual sales growth.


Strong market position and large market opportunity

Invisio has established a strong position in its segment and while there is extensive confidentiality we believe Invisio has won the majority of all larger relevant procurements which is evidence of its strong market position. This supports our view on potential growth from existing customers and its potential to continue winning new customers from ongoing procurements. The market opportunity for Invisio is also significant where the company in 2022 estimates the total addressable market to around SEK14bn implying ample growth potential with around SEK700m of revenue in 2022.


Unpredictable intake of larger orders

Invisio has an unpredictable intake of larger orders which means that revenue can vary widely on a quarterly basis. With a large share of fixed costs this also means large swings in profitability depending on when orders are delivered. However, the company has slightly reduced the dependent on larger orders as it has increased in size and through the acquisition of Racal which typically has a longer orderbook.


Base case DCF supported by long growth trajectory

We find a base case valuation of SEK260 per share for Invisio which is derived from a DCF-valuation. The base case implies an EV/EBITDA multiple of c. 37x on our 2023E EBITDA while the share has historically traded in a range of 20x to 50x twelve months forward EBITDA. Our base case assumes growth of around 17% over 2024-28 and 9% over 2029-38 with a terminal growth of 2% by 2038E. We estimate an expanding EBITDA-margin reaching 35% by 2028E whereafter we assume a gradual decline towards a terminal EBITDA-margin of 30% by 2038E.

Quality Rating

People: 5

Since 2014, Invisio has been demonstrating powerful, profitable growth after a rocky past in which the company had never before made a profit. Order inflow has clearly become more stable while average order value has increased. The management have therefore proven that the company is being steered in the right direction and that it was the right decision not to cut back on R&D during the loss years. The CEO has been with the company since 2006 and has important experience from previous executive roles at Ericsson. The options policy that covers all employees and the low employee turnover are also evidence of good management and good staff policies. Management insiders have significant equity holdings.

Business: 4

The prime value driver is increasing awareness of the massive costs of hearing damage. In-ear headsets are thus a market with a potential worth in the SEK billions, but it seems the big fish have thus far considered it too small a pond. The US Army is also the best imaginable reference customer and a springboard into other NATO countries. Awarded contracts also produce multi-year lock-in effects. Invisio's intercom product also has the potential to become a new growth driver while the acquisition of Racal has increased diversification. The combination of audiology expertise and more than ten years of sales to leading special forces give Invisio strong good competitive advantages.

Financials: 4

While Invisio’s earnings can be volatile on a quarterly basis, long term performance has been solid, albeit with temporary dips when the company has increase costs to invest for growth. The company’s capital-efficient business means that ROA and ROE will be high, and low fixed costs provide leverage to earnings, which suggests EBITDA margins around 30 percent in the medium term. Invisio’s higher volumes and business model have also resulted in economies of scale for the gross margin. Invisio has paid down all its debt and gradually built up the interest cover ratio. The company has stable net cash, especially considering the low requirements for investment and working capital. Defence budgets are also relatively stable and there are lock-in effects once contracts are awarded, which reduces the risks.


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