Topic: NFON will release its Q2 figures this week on Thursday. Here is what to expect:  

Q2 sales are seen to increase by 6% to € 21.6 based on an increased seat base (eNuW: +4% yoy to 666k) as well as price increases that were imposed during the quarter. Recurring revenues are seen to increase slightly stronger by 6.4% to € € 20.3m, implying a recurring revenue ratio of 94%, allowing for sound visibility given the company’s excellent customer retention (churn rate < 1% p.m.).

Q2 adjusted EBITDA is expected to show a further sequential improvement at € 2.9m, implying a 13.4% margin, marking a strong yoy improvement of 6.3pp. Main reason for the increased efficiency was the implementation of ongoing cost saving measures in connection with reduced marketing as well as personnel expenses. Reported EBITDA should come in at € 2.5m (eNuW).

Against this backdrop, we expect management to confirm the FY guidance of ARR growth in the mid-to upper-single-digit-% range (eNuW: +5.3% yoy) and an adjusted EBITDA of € 10-12m (eNuW: € 11.5m). In our view, this should be easily achievable, given that the lower end would require only 3.4% recurring sales growth at a 10.7% adj. EBITDA margin in H2. Moreover, FCF should again be positive and even slightly up sequentially (Q1: € 0.2m).

DTS integration to offer further optimization potential. In the beginning of Q3, NFON announced the finalization of the formal merger with Deutsche Telefon Standard GmbH (DTS), which was acquired back in 2019. DTS is offering a similar product portfolio that was not fully integrated yet, having its own salesforce, HR, accounting, etc. Going forward, DTS shall be fully integrated into NFON, which should create significant synergies to become visible as early as H2’24e.

Overall, NFON remains well positioned to benefit from the growth potential in the still underpenetrated European, and especially German PBX market. On top of this, cross- and up-selling of well perceived premium solutions like CC Hub should allow for continuous ARPU and margin expansion going forward.

Valuation continues to appear undemanding, in our view, as shares are trading on a mere 1.1 EV/Sales ‘24e (9.6x EV/EBITDA). We therefore reiterate BUY with an unchanged PT of € 11.70 based on DCF. NFON remains part of our NuWays Alpha List.