Addnode: Q1 Preview – Slight Increases
Research Update
2024-04-02
06:45
Redeye slightly increases its forecasts for Q1, 2024, and 2025 – mostly due to an expected improvement in Design Management. We raise our Base Case slightly.
FN
AH
Fredrik Nilsson
Anton Hoof
Contents
Design Management – US AEC Showing Signs of Rebound
Product Lifecycle Management – Defence Compensating Softer EV
Process Management – We Expect Stable Performance
Base Case Increased Slightly to SEK110 (108)
Q1 2024 Estimates
Estimate Revisions
Estimates
Investment thesis
Quality Rating
Financials
Rating definitions
The team
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SEKm | 2023 | 2024e | 2025e | 2026e | 2027e |
Revenues | 7,412.0 | 8,680.6 | 9,674.9 | 10,645.3 | 11,697.7 |
Revenue Growth | 19.1% | 17.1% | 11.5% | 10.0% | 9.9% |
EBITDA-CAPEX | 552 | 812 | 890 | 991 | 1103 |
EBITDA-CAPEXMargin | 7.4% | 9.4% | 9.2% | 9.3% | 9.4% |
EBIT | 410.0 | 644.9 | 768.0 | 861.0 | 961.9 |
EBIT Margin | 5.5% | 7.4% | 7.9% | 8.1% | 8.2% |
EV/Revenue | 1.6 | 1.8 | 1.7 | 1.5 | 1.4 |
EV/EBITDA-CAPEX | 22.1 | 19.7 | 18.0 | 16.3 | 14.7 |
EV/EBIT | 29.8 | 24.8 | 20.9 | 18.7 | 16.8 |
NetDebt | 837 | 1061 | 1129 | 1205 | 1273 |
NWC/R12mSales | -7.3% | -5.0% | -5.0% | -5.0% | -5.0% |
Regarding our Q1 expectations for Design Management, we note a rather optimistic view from Autodesk in its fiscal Q4 2024 (published 29 February), guiding for a ~10% revenue growth in fiscal 2025 (roughly equal to Addnode’s 2024). The US AEC market has been a drag on DM’s numbers recently but has now shown signs of recovery. For example, US home builder confidence rose to the highest level since July in March. Along with us expecting a sustained solid performance in TeamD3, we forecast a rather solid Q1 in DM. However, considering the strong market and high share of 3-year deals in Q1 2023, we forecast a negative organic growth of -8%. Regarding margins, we expect 8.8% on the EBITA level, down from 10.8% in Q1 2023 but above the 7.9% seen in Q4 2023. We expect better market conditions along with some cost adjustments to drive the q/q improvement.
Autodesk’s new transaction model is planned to be implemented gradually during 2024 for markets relevant to Addnode. That is somewhat faster than we previously thought. As discussed in our Q4 preview, we believe the new transaction model is neutral to slightly positive for Addnode. Our view is described in this text borrowed from the Q4 preview:
“From a purely financial perspective, the change has no substantial implications. It will lower Symetri’s sales and increase its gross margin, leaving gross profit, EBITA and cash flow unchanged. However, the change is more interesting from a strategic perspective. In addition to Addnode and other VARs (adding expertise and, in some cases, add-on software), there are still distributors in the digital world, mainly competing with price. With the new agent model, the strategy of selling cheap subscriptions is no longer, and distributors and VARs will have to add value in other ways. Considering Addnode’s expertise and portfolio of add-on software (customers have not chosen Addnode because of its cheap licenses), we believe the expected change in Autodesk's business model is slightly positive for Addnode. Also, it might open interesting M&A opportunities as smaller players struggle to adjust to the anticipated change in the transaction model.”
Addnode’s Q4 call included an illustrative example of the impact of the new transaction model on Addnode’s financials.
The picture below is from Autodesk’s Q4 call and describes the old and new models.
While some larger deals partly drove the strong momentum in PLM in H2 2023 – partly driven by the EV industry – we expect a stable development in Q1 2024. Although we believe investments in EV-related R&D have declined, we expect strong demand from the defence industry to compensate. Overall, we expect most end markets to remain roughly unchanged compared to Q4 – i.e. at a stable level.
We expect organic sales growth of 4% y/y, 3% M&A growth, and 1% from FX. Regarding margins, we expect 9.5% on the EBITA level, down from the strong 10.8% seen in Q4 – typically seasonally stronger due to a high share of license sales. On the other hand, Q1 will see a somewhat higher effect from the cost-saving program announced in 2023.
Since our last update, Addnode has acquired Canadian Optimec. The company has sales of about SEK40m and will join the PLM division. Although a small acquisition, it can pave the way for further expansion of PLM in North America.
While new sales constitute a small share of the market, Addnode seems to have performed rather well in a somewhat soft market regarding new sales during Q1 – with Sokigo signing deals with Falkenberg, and Sollentuna, and Ida Infront with Läkemedelsverket. We expect Addnode’s software-focused and niche operations to be largely unaffected by the pricing pressure on IT services in some public sector areas.
We leave our forecasts for Process Management unchanged and expect organic growth of 4%, a solid level but at the lower end of the 5-10% level seen over the last 2.5 years. Regarding margins, we expect 19% at the EBITA level.
We increased our Base Case to SEK110 (108), which roughly aligns with where the share is currently trading.
Fair Value Range - Assumptions | |||
Bear Case | Base Case | Bull Case | |
Value per share, SEK | 74 | 110 | 141 |
Sales CAGR | |||
2024 - 2031 | 9% | 10% | 11% |
2031 - 2041 | 6% | 7% | 8% |
Avg EBIT margin | |||
2024 - 2031 | 7% | 8% | 9% |
2031 - 2041 | 7% | 8% | 9% |
Terminal EBIT Margin | |||
Terminal growth | 2% | 2% | 2% |
WACC | 9% | 9% | 9% |
Source: Redeye Research |
Estmates | ||||||
Sales | Q1E 2024 | Q1A 2024 | Diff | Q1A 2023 | Q4A 2023 | |
Net Sales | 2216 | 2078 | -6% | 1972 | 2078 | |
Y/Y Growth (%) | 12% | 5% | 10% | 16% | ||
Design Management | 1421 | 1246 | -12% | 1212 | 1246 | |
Growth y/y (DM) | 17% | 3% | 21% | 24% | ||
EBITA (DM) | 125 | 98 | -22% | 131 | 98 | |
EBITA margin (DM) | 8.8% | 7.9% | 10.8% | 7.9% | ||
Product Lifecycle Management | 460 | 499 | 8% | 428 | 499 | |
Growth y/y (PLM) | 8% | 17% | -6% | 10% | ||
EBITA (PLM) | 44 | 54 | 23% | 26 | 54 | |
EBITA margin (PLM) | 9.5% | 10.8% | 6.1% | 10.8% | ||
Process Management | 345 | 346 | 0% | 332 | 346 | |
Growth y/y (PM) | 4% | 4% | -1% | 3% | ||
EBITA (PM) | 66 | 67 | 2% | 64 | 67 | |
EBITA margin (PM) | 19.0% | 19.4% | 19.3% | 19.4% | ||
Earnings | ||||||
EBITA | 220 | 196 | -11% | 202 | 196 | |
EBITA Margin (%) | 9.9% | 9.4% | 10.2% | 9.4% | ||
EBITDA-CAPEX* | 203 | 164 | -19% | 189 | 164 | |
EBITDA-CAPEX Margin (%) | 9.2% | 7.9% | 9.6% | 7.9% | ||
EBIT | 162 | 135 | -17% | 149 | 135 | |
EBIT Margin (%) | 7.3% | 6.5% | 7.6% | 6.5% | ||
Diluted EPS | 0.86 | 0.80 | -7% | 0.78 | 0.80 |
Estimate Revisions | ||||||
Sales | FYE 2024 | Old | Change | FYE 2025 | Old | Change |
Net Sales | 8681 | 8552 | 2% | 9675 | 9538 | 1% |
Y/Y Growth (%) | 17% | 15% | 11% | 12% | ||
Design Management | 5120 | 5015 | 2% | 5427 | 5316 | 2% |
Growth y/y (DM) | 19% | 17% | 6% | 6% | ||
EBITA (DM) | 463 | 450 | 3% | 516 | 505 | 2% |
EBITA margin (DM) | 9% | 9% | 0% | 10% | 10% | -5% |
Product Lifecycle Management | 1972 | 1936 | 2% | 2050 | 2013 | 2% |
Growth y/y (PLM) | 5% | 3% | 4% | 4% | ||
EBITA (PLM) | 193 | 189 | 2% | 203 | 199 | 2% |
EBITA margin (PLM) | 10% | 10% | -2% | 10% | 10% | -1% |
Process Management | 1329 | 1329 | 0% | 1382 | 1382 | 0% |
Growth y/y (PM) | 4% | 4% | 4% | 4% | ||
EBITA (PM) | 253 | 253 | 0% | 263 | 263 | 0% |
EBITA margin (PM) | 3% | 3% | 4% | 4% | ||
Earnings | ||||||
EBITA | 888 | 876 | 1% | 1028 | 1018 | 1% |
EBITA Margin (%) | 10.2% | 10.2% | 10.6% | 10.7% | ||
EBITDA-CAPEX | 812 | 804 | 1% | 890 | 884 | 1% |
EBITDA-CAPEX Margin (%) | 9.4% | 8.4% | 9.2% | 9.3% | ||
EBIT | 645 | 633 | 2% | 768 | 759 | 1% |
EBIT Margin (%) | 7.4% | 7.4% | 7.9% | 8.0% | ||
Diluted EPS | 3.41 | 3.34 | 2% | 4.14 | 4.09 | 1% |
Forecasts | ||||||||
Sales | FYA 2023 | Q1E 2024 | Q2E 2024 | Q3E 2024 | Q4E 2024 | FYE 2024 | FYE 2025 | FYE 2026 |
Net Sales | 7412 | 2216 | 2025 | 2075 | 2365 | 8681 | 9675 | 10645 |
Y/Y Growth (%) | 19% | 12% | 30% | 15% | 14% | 17% | 11% | 10% |
Design Management | 4291 | 1421 | 1160 | 1197 | 1342 | 5120 | 5427 | 5644 |
Growth y/y (DM) | 23% | 17% | 49% | 13% | 8% | 19% | 6% | 4% |
EBITA (DM) | 334 | 125 | 104 | 110 | 123 | 463 | 516 | 553 |
EBITA margin (DM) | 8% | 9% | 9% | 9% | 9% | 9% | 10% | 10% |
Product Lifecycle Management | 1879 | 460 | 491 | 497 | 523 | 1972 | 2050 | 2132 |
Growth y/y (PLM) | 19% | 8% | 5% | 3% | 5% | 5% | 4% | 4% |
EBITA (PLM) | 148 | 44 | 44 | 47 | 58 | 193 | 203 | 213 |
EBITA margin (PLM) | 8% | 10% | 9% | 10% | 11% | 10% | 10% | 10% |
Process Management | 1278 | 345 | 333 | 291 | 360 | 1329 | 1382 | 1438 |
Growth y/y (PM) | 8% | 4% | 4% | 4% | 4% | 4% | 4% | 4% |
EBITA (PM) | 244 | 66 | 63 | 55 | 68 | 253 | 263 | 273 |
EBITA margin (PM) | 19% | 19% | 19% | 19% | 19% | 19% | 19% | 19% |
Future M&A | 50 | 100 | 150 | 300 | 855 | 1471 | ||
Growth y/y (FM&A) vs. group | 3% | 6% | 7% | 4% | 6% | 6% | ||
EBITA (FM&A) | 6 | 12 | 18 | 36 | 103 | 177 | ||
EBITA margin (FM&A) | 12% | 12% | 12% | 12% | 12% | 12% | ||
Earnings | ||||||||
EBITA | 640 | 220 | 204 | 211 | 253 | 888 | 1028 | 1160 |
EBITA Margin (%) | 8.6% | 9.9% | 10.1% | 10.2% | 10.7% | 10.2% | 10.6% | 10.9% |
EBITDA-CAPEX* | 552 | 203 | 183 | 199 | 227 | 812 | 890 | 991 |
EBITDA-CAPEX Margin (%) | 7.4% | 9.2% | 9.0% | 9.6% | 9.6% | 9.4% | 9.2% | 9.3% |
EBIT | 410 | 162 | 144 | 149 | 190 | 645 | 768 | 861 |
EBIT Margin (%) | 5.5% | 7.3% | 7.1% | 7.2% | 8.0% | 7.4% | 7.9% | 8.1% |
Diluted EPS | 2.09 | 0.86 | 0.75 | 0.78 | 1.03 | 3.41 | 4.14 | 4.70 |
Case
Consolidating VAR/SaaS niches in more markets
Evidence
Strong track record of acquiring, integrating, and improving
Challenge
Dependent on Autodesk and Dassault Systemes
Challenge
Modest organic growth
Valuation
Fair Value SEK 108
People: 4
Addnode Group has a highly experienced and motivated management team. CEO Johan Andersson has been with the company since 2006 and was previously its CFO. The chairmen of the board, Staffan Hanstorp, is the founder of one of the ’group’s subsidiaries, a major shareholder, and was the group’s CEO for ten years. Mr Hanstorp is active in the company and has strategic responsibility. The group communicates with the market in an exceptional manner and has delivered on its financial and strategic targets
Business: 4
Addnode's organic growth has been relatively low, as it acts in a mature market. An increased organic growth rate would justify a higher rating. Over the past few years, the group has increased its presence outside of the Nordic region, which we see as positive. Addnode has a relatively large share of proprietary products and solutions, which increases its profitability. Another advantage is its focus on creating recurring revenue, which bolsters stability and enables improvements in profitability.
Financials: 4
Addnode is dependent on the economy and on the willingness to invest. However, the group is well diversified across many segments, which decreases the risk. Addnode has completed more than 50 acquisitions since 2003 and has, as a result, increased its debt. However, we claim its leverage is healthy and the acquisitions have been value-creating.
Disclosures and disclaimers
Contents
Design Management – US AEC Showing Signs of Rebound
Product Lifecycle Management – Defence Compensating Softer EV
Process Management – We Expect Stable Performance
Base Case Increased Slightly to SEK110 (108)
Q1 2024 Estimates
Estimate Revisions
Estimates
Investment thesis
Quality Rating
Financials
Rating definitions
The team
Download article