Solwers Q1'24 flash comment: Seasonality lower than we expected

Translation: Original comment published in Finnish on 05/31/2024 at 8:52 am EEST 

This morning, Solwers published its Q1 business review. The operational figures for the quarter significantly exceeded our forecast, which is based on a higher revenue accrual in Q1 than we expected. The company moved to quarterly reporting with Q1’24, and according to our preliminary interpretation, seasonality was lower than we expected in Q1. Considering this, we do not expect to make major changes to our forecasts for the coming years based on the Q1 report.

Higher revenue level than we expected

In Q4, Solwer's revenue grew by nearly 19% from the comparison period to  19.2 MEUR. This was clearly above our forecast of 16 MEUR. As we wrote in our Q1 preview, the Q1’24 report was the company’s first quarterly report, so it was challenging to assess the seasonality of the business. However, based on the figures for the comparison period, quarterly revenue for the first half of the year seems more stable than we estimated, so we do not think that direct conclusions can be drawn from the Q1 forecast overshoot concerning full-year forecasts. The company did not comment on the development of organic growth in the review, but we estimate that Q1 growth is mainly based on inorganic growth reflecting several acquisitions.

Profitability at the expected level

Q1’s EBITA reached approximately 1.5 MEUR, which also exceeded our forecast of approximately 1.3 MEUR and is well in line with our expectations of an 8% EBITA margin. We believe the key driver for the result overrun is the higher revenue level than we predicted, although the lighter business report does not provide detailed visibility to the cost structure. However, reflecting the company’s business model which is that of a service company, its largest expense item is personnel costs, and the number of personnel in Q1 was quite well in line with our forecast.

Outlook unchanged, a slight pickup detected

Solwers maintained its outlook for the current year unchanged and, according to the company, its business environment is expected to improve toward the end of 2024 as the market picks up in general. According to the CEO’s review, Q1’s billing rate and number of new projects were low, but the company has noticed a clear pick-up in these already during March. These comments are in line with our expectations, as our full-year forecasts expect organic revenue to fall by 2%, based on a 4% organic decline in revenue in H1 and stable development during the rest of the year. Thus, our revenue growth forecast for the full-year 2024 which stood at 17% before the Q1 report is based on completed acquisitions. According to our preliminary assessment, Q1’s slightly faster growth rate than we expected does not justify major forecast changes in the full-year forecasts.