Emergers: DLABORATORY: Strong growth and positive EBITDA a welcome shift in pace
With a steep increase in revenue, 35% recurring revenue growth, turn to positive EBITDA of SEK 2.2m and a forward-leaning statement from the new CEO, the Q3 report sends a strong signal that a new era for Dlaboratory is underway. The report is new CEO Rickard Jacobson’s first and with the share price near all-time low before the 43% rally on the report, the start of Q4 has provided both a good entry point for Jacobson (who acquired 425 000 warrants in October) as well as for shareholders looking for a reversal of the downwards trend. With a snowballing interest in network stability and electricity security, we find continued support for a fair value of SEK 5-7 per share in 12-24 m, but note that a breakthrough in the international roll-out holds potential for a substantial upwards revision.
Q3 revenue beat our expectations
The positive momentum noticed in H1’22 carried on into Q3. Revenue increased to SEK 14,0m although the revenue in Q3’21 of SEK 8,9m only includes the acquisition of SLB from August 1st. This also compares with our forecast of SEK 11m for Q3. Recurring revenue growth was 35%, which was a slight deceleration from 45% in Q2’22. Looking at the business, Dlaboratory received a large order from Vattenfall for advanced condition checks of 500 network stations using a combination of Dlaboratory’s service and SLB’s corona inspection. Dlaboratory also received several orders for increased grid surveillance.
Costs developed as expected in the quarter which along with repayment of pension provisions, resulted in a positive EBITDA of SEK 2.2m in Q2. With an increase in working capital of SEK 6m, cash flow was SEK -3.3m in the quarter. As a result we have raised our revenue forecast for FY 2022 to SEK 43m (40) and now expect an EBITDA for 2022 of SEK -10m (-17).
Hope for increased focus on international expansion in 2023
Going forward, we now hope to see an increased news flow about Dlaboratory’s international roll-out, primarily progress in Jakarta, further penetration in Dubai/Middle East and an entry into the US. Along with a ramp-up of recurring surveillance deals, we see these as the main potential triggers for the share. However, we also note that an international roll-out is slow to scale. Cash amounted to SEK 16 at the end of Q3’22, and while we expect a lower activity in SLB during the winter months, we estimate that this covers runway through 2023.
With the new CEO Rickard Jacobson now injecting his experience from international sales, expansion and business development into Dlaboratory, we continue to look favorably on the target of 600 units connected in the domestic markets and 800 units connected outside the domestic markets by the end of 2025, which would translate into recurring revenues of SEK 80 million per year. All in all, we continue to find support for a fair value of SEK 5-7 SEK on a 12–24-month horizon, at a medium to high risk in Dlab, where the most significant risks consist of long lead times and high thresholds for adaptation.
Read the full report at https://www.emergers.se/dlab_l/