Invisio: Continued positive growth outlook
Research Update
2023-10-27
07:41
Redeye updates on Invisio following the company’s Q3-results which saw stronger topline than expected but lower earnings, partly driven by one-off costs. The outlook remains strong where potential impact from increasing defense budget could spur additional upside to our growth forecast.
HA
JW
Hjalmar Ahlberg
John Westborg
Invisio reported stronger-than-expected topline in Q3 with revenues coming in at SEK312m compared to our forecast of SEK293m. While the topline was stronger-than-expected, EBITDA came in 7% below our estimate as opex increased more than forecasted. However, the opex increase was partly explained by bonus provisions and the underlying cost increase was just slightly higher than expected.
Looking forward, the growth outlook remains strong and Invisio reiterates its expectation of strong revenue growth and profit in the coming quarters. While the order intake was somewhat lower than in previous quarters, there were no large press-released orders in the quarter which implies a continued strong flow of smaller orders. Furthermore, the company has not yet seen any impact from growing defense budgets, creating upside potential for growth in the coming years.
Overall, we make limited changes to our topline assumptions on the back of the report. However, we trim our EBITDA estimates with 5-6% for 2023-25E as we have increased our opex estimates following the higher-than-expected costs in Q3 2023. While our long-term assumptions are unchanged, we lower our base to SEK240 (SEK260) which is impacted by a higher assumption for the risk-free interest rate. The share currently trades at 21x 2024E EBITDA while our base case implies 30x 2024E EBITDA which is in line with the historical average.
| SEKm | 2021 | 2022 | 2023e | 2024e | 2025e |
| Revenues | 592.9 | 775.4 | 1,202.1 | 1,349.2 | 1,551.6 |
| Revenue Growth | 11.5% | 30.8% | 55.0% | 12.2% | 15.0% |
| EBITDA | 70.0 | 112.7 | 296.5 | 350.6 | 452.2 |
| EBIT | 24.8 | 65.1 | 238.0 | 288.1 | 387.5 |
| EBIT Margin | 4.2% | 8.4% | 19.8% | 21.3% | 25.0% |
| Net Income | 14.3 | 44.3 | 170.5 | 216.0 | 290.6 |
| EV/Revenue | 12.2 | 10.4 | 6.3 | 5.6 | 4.7 |
| EV/EBITDA | 104 | 71.4 | 25.6 | 21.4 | 16.3 |
| EV/EBIT | 292 | 124 | 31.9 | 26.0 | 19.0 |
Invisio reported revenue of SEK312m for Q3 2023 which was c6% above our forecast of SEK293m. While the gross margin was also strong coming in at 61.3% compared to our forecast of 60.0%, EBITDA was somewhat lower than forecasted coming in at SEK67m vs our estimate of SEK72m. This was due to higher opex than expected (we estimated total opex of SEK119m while the outcome was SEK140m), which partly was driven by extra provisions for the company’s incentive program. The company stated that this impacted opex with around SEK15m and adjusted for this, the underlying opex was just slightly above our forecast.
The table below summarizes the Q3-report outcome compared to our forecasts.
| Invisio: Results outcome | |||||||
| SEKm | Q3 22 | Q4 22 | Q1 23 | Q2 23 | Q3 23E | Q3 23A | Diff |
| Sales | 195 | 289 | 311 | 270 | 293 | 312 | 6% |
| EBITDA | 29 | 72 | 97 | 61 | 72 | 67 | -7% |
| EBIT | 18 | 60 | 84 | 45 | 57 | 51 | -10% |
| PTP | 19 | 56 | 84 | 38 | 57 | 55 | -4% |
| EPS (SEK) | 0.30 | 0.95 | 1.33 | 0.60 | 0.93 | 0.88 | -6% |
| Sales growth | 36.7% | 90.0% | 126.6% | 75.5% | 50.0% | 59.7% | n.a. |
| Gross margin | 58.1% | 57.4% | 62.5% | 60.5% | 60.0% | 61.3% | n.a. |
| EBITDA margin | 15.0% | 25.0% | 31.0% | 22.4% | 24.4% | 21.3% | n.a. |
| EBIT margin | 9.0% | 20.7% | 26.9% | 16.8% | 19.4% | 16.4% | n.a. |
| Source: Redeye Research |
Invisio reiterated its outlook where it expects continued strong revenue and profitability as well as order intake in the coming quarters. In Q3, Invisio saw an order intake of SEK258m which was lower than the average level in the last few quarters but should be considered solid given that no large orders have been press released. The company comments that it has not yet seen any effect of growing defense budgets on its revenues. While it is difficult to foresee when this can have an effect on Invisio the company sees potential for this to have an impact in late 2024. The company also adds that it sees potential to achieve its growth target of 20% even without any impact from increased defense budgets. Still, considering our growth forecast of 55% in 2023E which follows 31% growth in 2022 comps are tough and we forecast growth of 12% in 2024E and 15% in 2025E.
Invisio: Order intake and revenue 2018-25E
While we make limited changes to our topline estimates on the back of the Q3-report, we have increased our opex assumptions. On the other hand, we lift our gross margin assumptions to 61% from 60% which is still in the lower end of the 60-65% that the company aims to achieve over time. All in all, we trim our EBITDA estimates with 5-6% for 2024-25E.
Invisio: Revenue, opex and profitability 2018-25E
| Invisio key financials 2019-25E | |||||||||||
| SEKm | 2019 | 2020 | 2021 | 2022 | Q1 23 | Q2 23 | Q3 23 | Q4 23E | 2023E | 2024E | 2025E |
| Revenue | 514 | 532 | 593 | 775 | 311 | 270 | 312 | 309 | 1,202 | 1,349 | 1,552 |
| Growth Y/Y (%) | 45% | 4% | 11% | 31% | 127% | 76% | 60% | 7% | 55% | 12% | 15% |
| Gross profit | 313 | 309 | 340 | 450 | 195 | 163 | 191 | 189 | 737 | 823 | 946 |
| Gross margin, % | 61% | 58% | 57% | 58% | 62% | 61% | 61% | 61% | 61% | 61% | 61% |
| EBITDA | 142 | 108 | 70 | 113 | 97 | 61 | 67 | 73 | 296 | 351 | 452 |
| EBITDA (%) | 28% | 20% | 12% | 15% | 31% | 22% | 21% | 24% | 25% | 26% | 29% |
| Total opex | -181 | -214 | -316 | -385 | -111 | -118 | -140 | -131 | -499 | -535 | -559 |
| EBIT | 132 | 96 | 25 | 65 | 84 | 45 | 51 | 58 | 238 | 288 | 387 |
| EBIT (%) | 26% | 18% | 4% | 8% | 27% | 17% | 16% | 19% | 20% | 21% | 25% |
| PTP | 134 | 85 | 23 | 62 | 84 | 38 | 55 | 58 | 233 | 288 | 387 |
| EPS, SEK | 2.3 | 1.4 | 0.3 | 1.0 | 1.3 | 0.6 | 0.9 | 0.9 | 3.7 | 4.7 | 6.4 |
| Source: Redeye Research |
While the trimmed estimates for 2023-25E have limited impact on our valuation, we have lowered our base case owing to an increase of our assumption for the risk-free rate which we raise to 3.0% from 2.5% (our discount rate is increased to 8.0% from 7.5%). Our new base case stands at SEK240 (SEK260) while the bull case is SEK375 (SEK400) and the bear case is SEK135 (SEK140). Our base case implies an EV/EBITDA of 36x on 2023E and 30x on 2024E forecasts, while the five-year average has been 30x NTM EV/EBITDA (range of 20-50x). At the current price of SEK170, the share trades at 21x 2024E EBITDA. The table below summarizes key assumptions for our valuation scenarios.
| Invisio: Fair Value Range | |||
| SEK | Bear Case | Base Case | Bull Case |
| Value per share | 135 | 240 | 375 |
| Revenue CAGR 2024-2028 | 13% | 16% | 20% |
| Revenue CAGR 2029-2038 | 6% | 9% | 10% |
| Growth Terminal | 2% | 2% | 2% |
| EBITDA-margin 2024-2038 | 27% | 31% | 36% |
| EBITDA Terminal | 25% | 30% | 35% |
| Source: Redeye Research | |||
Case
Market leader in niche market with high barriers of entry
Evidence
Strong market position and large market opportunity
Challenge
Unpredictable intake of larger orders
Valuation
Base case DCF supported by long growth trajectory
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.
| Income statement | |||||
| SEKm | 2021 | 2022 | 2023e | 2024e | 2025e |
| Revenues | 592.9 | 775.4 | 1,202.1 | 1,349.2 | 1,551.6 |
| Cost of Revenue | 252.6 | 325.7 | 464.7 | 526.2 | 605.1 |
| Operating Expenses | 270.3 | 337.0 | 441.0 | 472.5 | 494.3 |
| EBITDA | 70.0 | 112.7 | 296.5 | 350.6 | 452.2 |
| Depreciation | 5.8 | 5.4 | 7.9 | 8.0 | 8.0 |
| Amortizations | 30.1 | 33.9 | 38.3 | 40.5 | 42.8 |
| EBIT | 24.8 | 65.1 | 238.0 | 288.1 | 387.5 |
| Shares in Associates | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Interest Expenses | 3.2 | 2.7 | 4.8 | 0.00 | 0.00 |
| Net Financial Items | -1.4 | -2.7 | -4.8 | 0.00 | 0.00 |
| EBT | 23.4 | 62.4 | 233.2 | 288.1 | 387.5 |
| Income Tax Expenses | 9.1 | 18.1 | 62.7 | 72.0 | 96.9 |
| Net Income | 14.3 | 44.3 | 170.5 | 216.0 | 290.6 |
| Balance sheet | |||||
| Assets | |||||
| Non-current assets | |||||
| SEKm | 2021 | 2022 | 2023e | 2024e | 2025e |
| Property, Plant and Equipment (Net) | 17.1 | 20.8 | 50.6 | 56.1 | 63.6 |
| Goodwill | 54.5 | 56.2 | 56.2 | 56.2 | 56.2 |
| Intangible Assets | 181.9 | 182.7 | 181.8 | 181.7 | 185.5 |
| Right-of-Use Assets | 33.7 | 22.8 | 22.8 | 22.8 | 22.8 |
| Other Non-Current Assets | 5.6 | 6.5 | 6.5 | 6.5 | 6.5 |
| Total Non-Current Assets | 292.8 | 289.0 | 317.9 | 323.3 | 334.6 |
| Current assets | |||||
| SEKm | 2021 | 2022 | 2023e | 2024e | 2025e |
| Inventories | 117.5 | 144.4 | 240.4 | 269.8 | 310.3 |
| Accounts Receivable | 117.6 | 194.5 | 222.4 | 249.6 | 287.1 |
| Other Current Assets | 27.3 | 28.9 | 36.1 | 40.5 | 46.5 |
| Cash Equivalents | 134.8 | 127.1 | 231.5 | 322.3 | 446.0 |
| Total Current Assets | 397.2 | 494.9 | 730.4 | 882.2 | 1,089.9 |
| Total Assets | 690.0 | 783.9 | 1,048.2 | 1,205.5 | 1,424.5 |
| Equity and Liabilities | |||||
| Equity | |||||
| SEKm | 2021 | 2022 | 2023e | 2024e | 2025e |
| Non Controlling Interest | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Shareholder's Equity | 417.5 | 510.0 | 707.5 | 838.3 | 1,020.9 |
| Non-current liabilities | |||||
| SEKm | 2021 | 2022 | 2023e | 2024e | 2025e |
| Long Term Debt | 85.0 | 65.0 | 65.0 | 65.0 | 65.0 |
| Long Term Lease Liabilities | 34.3 | 24.8 | 24.8 | 24.8 | 24.8 |
| Other Long Term Liabilities | 35.4 | 34.6 | 34.6 | 34.6 | 34.6 |
| Total Non-Current Liabilities | 154.7 | 124.4 | 124.4 | 124.4 | 124.4 |
| Current liabilities | |||||
| SEKm | 2021 | 2022 | 2023e | 2024e | 2025e |
| Short Term Debt | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Short Term Lease Liabilities | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Accounts Payable | 34.1 | 63.7 | 72.1 | 81.0 | 93.1 |
| Other Current Liabilities | 83.7 | 85.9 | 144.3 | 161.9 | 186.2 |
| Total Current Liabilities | 117.8 | 149.6 | 216.4 | 242.9 | 279.3 |
| Total Liabilities and Equity | 690.0 | 784.0 | 1,048.3 | 1,205.6 | 1,424.6 |
| Cash flow | |||||
| SEKm | 2021 | 2022 | 2023e | 2024e | 2025e |
| Operating Cash Flow | 91.0 | 41.7 | 152.4 | 230.0 | 293.8 |
| Investing Cash Flow | -191.9 | -33.5 | -75.1 | -54.0 | -62.1 |
| Financing Cash Flow | 73.0 | -25.1 | 27.1 | -85.2 | -108.0 |
Disclosures and disclaimers