Innofactor: Offer likely to succeed in due course

Onni Bidco's tender offer for Innofactor's shares fell about 10% short of the target of more than 90% during the first offer period, and the company has therefore decided to extend its offer. Innofactor also made several other announcements yesterday, the most important of which was a negative profit warning on revenue and EBITDA, which led us to slightly lower our forecasts. In our view, the offer is still a good one for shareholders from a number of perspectives and we believe there is a strong likelihood that the offer will be successful. We reiterate our target price of EUR 1.68 and our Reduce recommendation and also recommend accepting the offer.

Onni Bidco announced extension of offer period

Innofactor announced yesterday that Onni Bidco Oy has acquired a total of approximately 81.0% of the shares and voting rights in Innofactor. The consortium has thus acquired approximately 60% of the shares (excluding CEO Ensio's shares) during the first offer period. The offer therefore did not yet reach the target of 90% of the shares in the first "window", which would have allowed a redemption of up to 100% of the shares. However, we still expect the offer to pass in due course. At the same time, Onni Bidco announced yesterday that it will continue its public cash tender offer for all Innofactor shares, which commenced yesterday and will expire on October 3, 2024. Onni Bidco will announce the preliminary percentage for the subsequent offer period on or about October 4, 2024 and the final percentage on or about October 8, 2024. Onni Bidco has reserved the right to acquire shares in public trading.

Innofactor issued a negative profit warning

Innofactor lowered its guidance yesterday and now expects revenue and EBITDA to be lower than in 2023 (previously expected to increase). The decrease in earnings guidance was expected, but the decrease in revenue guidance was disappointing given our forecasts for a positive turnaround in H2. Considering the weak market and the profit warning, we have lowered our forecasts for the next few years.

Unlikely to see a competing bid, especially now that the consortium already owns 81%

We consider a competing bid unlikely, especially now that the consortium owns 81% of the shares. From an expected return perspective, we still believe the offer is recommendable. In our view, waiting for the company's development and value creation to reach the level of the offer would be a long and uncertain journey. If the 90% ownership is exceeded, as we believe is likely, the remaining owners will, in our understanding, have to wait 6 months for their redemption payments. We understand that in practice Onni Bidco can increase the offer after 9 months if it fails to exceed 90%, but in this case, it will also have to pay an increased offer for the remaining redeemable stake. We therefore expect the company to buy the required stake over time on the stock exchange at the consideration price (EUR 1.68).

Still a good offer for shareholders from several perspectives

The offer is fully in line with our post-Q2 DCF calculation of EUR 1.68. In terms of 2024e valuation multiples (P/E 17x and EV/EBIT 14x), it also now represents a premium of just over 10% to Finnish peers (20% at time of bid). The corresponding Finnish listed peer multiples for 2019-2023 average 17x and 13x, also reflecting the strength of the offer, especially as the valuation is mainly driven by lower required returns. Thus, we think the consideration was and still is good from several different perspectives. Operationally, Innofactor has made good progress in Finland in recent years, but development in other Nordic countries has been limited for years. In addition, the difficult market situation is now starting to be reflected in the company's weaker operating performance. Hencce, the potential in our DCF calculation relies very much on future performance, and we believe the current offer is a good risk/reward proposition from an owner's perspective.