• '24e-'26e EBITA down 7-1%...
• ...primarily due to changes in capitalisation policy
• '24e-'25e lease adj. FCFE yield excl. earn-outs of ~8%

Takeaways from the report

The Q1 report was in line on organic growth (11% vs. FactSet cons. at 10%), but beat once again on gross margin (30.8% vs. cons. 30.2%). When adjusting EBITA for the new capitalisation policy, Humble also came in line with consensus rather than missing mechanically by 13% vs. consensus. The operating cash flow of ~SEK 30m was somewhat better than we had expected, driven primarily by less tied up working capital.

Estimate changes

Following the Q1 report, we make minor adjustments to our adj. EBITA estimates for '24e-'26e, cutting them by 7-1%. The key reason for our negative estimate revisions is the company's newly adapted capitalisation policy, which reduces the annual run-rate for capitalised work from ~SEK 80m to ~SEK 5m. Mechanically, this explains the entirety of our negative revisions, which are offset by slightly higher gross margin estimates, given the company's recent improvements. With an upcoming change of listing venue, the company can technically open up for an additional capital allocation opportunity, like buybacks, which could be helpful when acquisitions are a relatively less attractive capital allocation option. That said, we continue to believe that M&A opportunities could be opened up as early as H2'24, albeit somewhat more selectively than in prior periods.

Valuation

Based on our revised estimates, the company is trading at an 8% '24e-'25e lease adj. FCFE yield (excluding earn-out payments). While peers are trading at 7-9% for '24e-'25e, they are growing earnings at a generally slower rate.