• Q1 sales hurt by lower US sales, but other regions contributed well
• Fine-tuned sales estimates, but we lift our GM assumptions
• Ovzon-3 sales to gradually ramp up in H2e, 10% FCF yield in '25e

Poor US sales, but the SSC order contributed well

Q1 sales were a mixed bag, with Sweden performing well due to the significant SEK 135m order from the Swedish Space Corporation (SSC), while the US declined sharply due to the unusually low volumes from the US DoD. In total, sales were SEK 65m (+4% vs. ABGSCe), -29% q-o-q or +13% y-o-y. We believe that the US-related weakness partly stemmed from recent delays in US Congress about the defence budget, and although it looks like this has recently made progress, we do not expect any improvements in Q2. Furthermore, we believe that the delayed launch of Ovzon-3 has impacted some of its sales activities. That said, with Ovzon-3 being successfully launched and becoming operational from mid-'24, we expect a gradual pick-up in H2, also supported by the positive signal value from US DoD becoming the first customer to buy Ovzon's latest terminal, T-7. The coming quarters will also benefit from the USD 9.7m order from a European customer, starting in Q2. Furthermore, earnings will also see support from lower costs of purchased satellite capacity, which drove the Q1 gross margin to 38% (vs. 35% in Q4).

Estimate changes

We make small changes to our '24e-'26e sales after Q1, but lift our EBITDA estimates due to higher gross margin assumptions. We continue to assume a gradual ramp-up in Ovzon-3 capacity in H2, reaching 15% utilisation in '24e and 49% in '25e.

Implied valuation

While Ovzon's leased capacity business remains important to track, the successful launch of Ovzon-3 has been a major step in the equity story as it should improve Ovzon's profits substantially, given that Ovzon-3 potentially has gross margins of ~95% vs. the leased capacity business of ~35-40%. The share is trading at 19x-9x '25e-'26e EV/EBIT, and offers 10-17% FCF yields.