Swedish IT services company CombinedX gives small positive signals about the market, but no guidance

Translation: Original comment published in Finnish on 2/7/2024 at 4:05 pm EET.

Swedish IT services company CombinedX published its Q4 report on Wednesday. CombinedX is a portfolio of smaller specialized IT services companies that help customers to benefit from the opportunities of digitalization. In our view, CombinedX's comments provide some insight into the development of the IT services market, especially for those also operating in Sweden. It is also a strategically interesting peer to, for example, Siili (similar portfolio characteristics) and some Finnish unlisted companies.

CombinedX's revenue grew by 5% and organically the development was -1% in Q4. The company commented that revenue for the comparison period was strong. With the same number of working days, organic growth would have been 1%. The company improved net recruitment in Q4 and reported lower employee turnover during the year, both of which give a small indication of improvement. The adjusted EBITA margin rose to 13.8% from 11.5% in the comparison period. In 2023, CombinedX's revenue grew by 18% and organically by 6%. EBITA margin stood at 12.3% (9.4% in 2022). Full-year organic growth is slightly better than Finnish peers (2023e ~3%). In addition, CombinedX's profitability is almost twice as good as the Finnish average (7%).

CombinedX said in a conference call that it is still targeting further recruitment in 2024. Thus, although the company did not give official guidance for 2024, it can be assumed that the company is still aiming for organic growth. In terms of financial targets, the company is aiming for better organic growth in the IT services market and, with acquisitions, a revenue of 1 BNSEK in 2025 (2023: 767 MSEK), which means annual growth of around 15% in 2024-25. CombinedX has generally said it aims to make 2-3 acquisitions a year (just one last year). CombinedX and Exsitec mentioned in Q4 that the M&A market had improved towards the end of the year, with better knowledge of the cost of financing and a narrowing of the expectation gap between buyers and sellers. This would also be a positive trend in Finland, where the market has been "cold" for some time and IT services companies are looking to make better use of their balance sheets. In terms of profitability, CombinedX is targeting an EBIT margin of at least 10%, which it achieved in 2023, but not in 2022. The profitability target reflects well the overall target level of the Finnish IT services sector but is higher than the level achieved by the Finnish IT services sector in recent years.