Napatech continued to be affected by customers' buying behaviour in Q1, with sales declining 29% y-o-y, and the gross margin was only 55%, explained by extraordinary component costs related to components purchased last year. For Q2, we expect that the market continued to be challenging. This is supported by the market consultancy, Omdia, which forecasts a 12% decline in server shipments for 2023. As such, we expect legacy sales to be fairly in line with Q1. However, with more revenue being recognised from Intel, sales are expected to come in at DKK 42m, i.e. up 19% y-o-y (note that sales were down 24% y-o-y in Q2 last year). Furthermore, the gross margin is expected to come up sequentially in Q2, driven by i) more revenue from the Intel contract, and ii) component costs coming down. As such, we forecast EBITDAC in Q2 to come in at DKK -16m.
FY guidance dependent on market improvement in H2
As the market likely continued to be challenging in Q2, we lower FY'23 sales by 2% to DKK 180m, which is at the low end of the DKK 180-200m guidance. This is driven by a gradual improvement in legacy sales (excl. Intel) in H2 of 8%, FX adj. growth in Q3, and 13% in Q4. With costs being relatively in line with the midpoint of company guidance, this results in a FY'23e EBITDAC of DKK -39m (midpoint of guidance at DKK -33m).
Fair value range of NOK 10-18/share
Peers are trading at a EV/Gross Profit of 6.5-5.6x for '23-'24e, corresponding to NOK 10-11/share, while we expect Napatech to grow significantly faster. Furthermore, industry transactions point to ~7.5x EV/Sales and a share price of NOK 18, leaving us with a fair value range of NOK 10-18/share. Lastly, note that current product development could lift EV by ~2.4x if only four Intel customers adopt their new solution (see valuation section).
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