The Q2 report was in line with our estimates and was relatively unsurprising. ARR continues to grow sequentially, which of course is positive in the context of Litium's fixed revenue base. Costs were under slightly better control than we expected, but we assess that Litium will eventually ramp up costs as conditions improve for its clients, i.e., when client volumes rebound.
Minimal EBITDA estimate changes
We maintain our sales estimates but raise '24e EBITDA by 4% after the report. It is likely that Litium's cohort of B2C clients has started to see reduced inventories and a return to a more profitable state. In our view, it is a matter of time before both B2C client volumes improve and the latent investment cycle turns (likely in '25e). B2C volume growth is likely to precede the latent investment cycle, and we therefore would see a volume recovery as a leading indicator for accelerated growth. We are still optimistic about the company's operating performance and prospects thanks to Litium's dependable operating performance.
Valuation
Our revised estimates imply that the company is trading at an EV/ARR multiple of ~2.4x and at a '24e EV/EBITDA of ~12x, whereas Nordic IT services peers are trading at a '24e EV/EBITDA of ~16x.
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