NFON published final FY 2023 figures, which were in line with the preliminary results published in early March. FY recurring revenues stood at € 77.1m, up 4.8% yoy at a continuously strong recurring revenue ratio of 93.7%. This was particularly driven by further key account gains as well as cross and upselling at existing clients. Total seats stood at 656k at YE, up 3.4% yoy. Despite the disproportionate increase in recurring revenues, the blended ARPU, which is adjusted for recurring sales from SIP-Trunks, remained stable at € 9.71, which was caused by a decline in voice minutes sold resulting from the fading out of Covid effects. Going forward, we expect ARPU to rise again driven by (1) price increase, which the company started to impose at the end of last year, and (2) from selling premium solutions like CC Hub, were ARPU levels are seen at € 30-40, eNuW.  

FY profitability significantly improved yoy, visible in an adjusted EBITDA of € 8.4m (2022: € -1.0m; reported EBITDA of € 6.8m vs € -5.3m). Main drivers for this have been an improved gross margin (+2pp yoy) resulting from the higher recurring ratio, but more importantly the imposed efficiency measures in relation to personnel (personnel ratio -3.9pp yoy) as well as marketing (marketing ratio -5.2pp yoy), which already beard fruit. A further highlight was clearly FCF, which came in at € 1m (2022: € -12.4m), thus being positive for the first time since the IPO in 2018.

In FY '24, management aims to achieve recurring revenue growth in the mid- to upper-single-digit-% range paired with an adjusted EBITDA improvement to € 10-12m. This looks achievable in our view, driven by several effects like an improved sales-mix as well as further efficiency improvements, particularly the integration of DTS, which is seen to create significant synergies from H2 onwards.

M&A as possible further catalyst. CEO Heider indicated in yesterday’s earnings call that inorganic growth climbed up the agenda and that the company is already screening the market for possible targets. Here, the focus should be on strengthening existing markets or tapping new ones, on our view. Yet, given the ongoing organizational transformation, newsflow in this regard seems unlikely during FY '24e. 

Although NFON shares slightly recovered recently after a sluggish start to the year, valuation remains attractive, as the stock is trading at only 1.1x EV/Sales ‘24e. We hence continue to recommend to BUY at with an unchanged PT of € 11.70 based on DCF and keep the stock in our Alpha List.