Net Sales came in at SEK193m, 103% y/y, somewhat below our estimate of SEK212m (deviation -9%). Subsequent to the Connect acquisition, sales have become more seasonal. Thus, we believe part of the deviation could be due to more significant seasonal effects than expected. EBITDA came in at SEK35m, corresponding to an EBITDA margin of 18% (EBITDA SEK22m, EBITDA margin 23% last year). Thus, it is only slightly below our estimate of SEK37m. The main reason for the more minor deviation is a higher gross margin than expected, as OPEX was 3% higher. On the positive side, management’s pursuit of synergies with acquisition is bearing fruit, and the EBITDA- and EBIT margin are trending upwards post the Connect consolidation. According to Infracom, Q3 2023 is the low point of Connect due to vacations during the summer.

Infracom is well-positioned to capitalize on a cooler acquisition market and sees more inbound and larger acquisition targets. We estimate the company has dry firepower in the range of SEK125m-175m in expanding its credit facility while still meeting its covenants. The covenant for the facility is an interest coverage ratio of 5:1, Net Debt to EBITDA of 2.5x, and an equity/asset ratio of 30%. Our calculations do not factor in Infracom using its share for acquisitions, which could add additional firepower. While the market appears skeptical of Infracom’s ability to execute larger acquisitions and integrate these, we see clear signs of Connect moving in the right direction, profitability-wise, to give the company the benefit of the doubt.

We increase our assumptions for acquired growth. Our base case assumes an average annual sale from acquisitions of SEK40m but at a lower EBITDA margin. We have also increased our risk-free rate assumption from 2.5% to 3.0%. The overall effect is that we keep our fair value range. Infracom trades at a discount to peers, while our base case implies a 15% premium on 2024e EV/EBITDA, which we believe is fair considering Infracom’s proven acquisition track record. We expect the main catalysts to be future acquisitions.