Napatech: Strategic partnerships starting to materialise - ABG

Challenging year outweighed by record large order in ’23 Could play a role in further market consolidation Fair value range of NOK 13-18/share 2022 will be another challenging year… Napatech is scheduled to report its Q3 results on 30 Nov. Q2 sales were down 33% y-o-y (adj. for FX) and 37% below our estimate, largely due to larger OEMs shifting order timing. Consequently, the company lowered its FY sales guidance by 16% to DKK 195-220m and now expects an EBITDAC of DKK -4.8m on a midpoint basis. This compares to our estimates of DKK 204m in sales and an EBITDAC of DKK -12m. For Q3, we believe that the market remained challenging and consequently forecast sales of DKK 45m (-4% y-o-y, -21% FX adj.) and EBITDAC of DKK -9m. …but record-high order gives confidence in ’23 and beyond Napatech was awarded a significant new design win in Q2 with delivery in 2023, and with potential FY revenue of USD 10-15m, i.e. ~37-56% of LTM sales. The customer is a “multi-billion-dollar global leader in network and security solutions”, i.e. likely the company’s largest one. Our understanding is that Intel has been an important reference to win the contract as large customers typically do not choose Napatech due to its small size. Napatech also says it has been approached by several large companies and has initiated a strategic review to consider its options for capitalising on the large opportunities ahead. Although this might entail additional partnerships, we believe a potential acquisition is also likely due to Napatech’s position in the market (further details in the report). Following the Q2 report, we lower ‘22e estimates significantly, while for next year, we now expect sales of DKK 327m and EBITDAC of DKK 32m, largely driven by the USD 10-15m order. New fair value range of NOK 13-18 (6-17) Industry peers are trading at an EV/Gross Profit in ‘23e and ‘24e of 4.9x and 4.7x. Pricing Napatech in line with this peer group would imply a share price of NOK 13-15. Note that we expect Napatech to ... Läs mer på ABG Sundal Collier