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Greater Than: A big hit to revenues in Q3 20 but some was planned - Danske Bank

While we had expected SEK4.5m in revenue, Greater Than reported only SEK1.2m. We had expected a recovery and the B2C side to be relatively small. Instead, fleets are still grounded and this impacts revenue generation, which needs the vehicles to be driven. Still, management kept costs down, which is a mitigating factor. We make large estimate revisions, as we expect the second wave of the pandemic to keep projects grounded.

It is not the solution itself but the delays in implementing it. It takes time to change the habits of traditional, large companies, which for decades have run their operations in the same way and quite profitably. Hence, Greater Than’s mission to persuade the largest insurance companies to rethink their car insurance logic and business models takes a lot of effort. If successful in doing this, which we believe it will be, it could be highly profitable. The COVID-19 outbreak had a small impact initially but things do not look to have improved in Q3. The pandemic, even though painful short term, could have a positive long-term impact on how professional vehicle fleet operators look at car insurance and hence force change at the insurance companies. Over time, we expect the pandemic could speed up change in business models in the insurance industry and we believe Greater Than is well positioned.

Q3 20 sharp revenue miss but majority related to exiting B2C. The quarter included two items that took revenues down far lower than we had expected. First, the company discontinued its small B2C (business-to-consumer) operation (announced in spring 2020) in order to focus over the long term on the much larger B2B (business-to-business) opportunity out there. We had no insight into the size of the revenue share that belonged to this unit and our estimate that it was a small share was wrong. Together with revenue streams from the B2B side not recovering, this resulted in a hard hit for group revenues. However, partly mitigating this was a higher gross margin (very low dongle sales) and lower employee costs than we had forecast. This resulted in the loss in the quarter coming close to our estimate.

Sharp estimate cuts. We expect the worsening pandemic to hold back developments for longer for the company. We cut our revenue estimates but raise our gross margin estimates.
Lowered valuation range. We lower our valuation range from SEK90-166 to SEK83-SEK138.

Link to research
https://publication.danskebank.com/SingletrackCMS__DownloadDocument?uid=922d2fd9-366e-42b2-a24d-c19f651cee2b&docRef=e4e0a1ea-645
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