In our view, the recent share price weakness (-23% YTD) is highly unjustified and should rather offer an attractive entry point as we advise investors to BUY the dip. Here is why:

Operational turnaround in full swing. As outlined in our recently published long-note (

click here

), things took a turn for NFON in 2023, as efficiency measures, such as reduced marketing spend (9M ’23: -51% yoy) and workforce adjustments (-12% yoy) started to gain traction. Combined with an improved gross margin (+2.1pp yoy) this enabled the company to expand its adjusted EBITDA significantly to € 6.0m (9M ’22: € -0.8m).

Structural growth drivers. NFON finds itself amid a structurally growing and historically underpenetrated market. Especially the company’s core business multi-tenant cloud-PBX is seen to deliver compelling growth rates (13% CAGR ’22- ‘26e). The final fading out of ISDN by telecom carriers (end of 2022) the latest should serve as an inflection point, forcing businesses to switch to VoIP based solutions such as NFON’s Cloudya. Against this backdrop, penetration rates are seen on the rise, particularly in Germany (H1 '23: 14% penetration; 2027e: 43%; 76% of NFON sales), where the market has been historically underpenetrated. As market leader, NFON should be a clear beneficiary of this development.

Strong FY figures expected. NFON will release preliminary FY figures on March 7th which look set to come in ahead of street’s expectations on the bottom-line. In detail: FY ‘23e sales are seen at € 82.4m (eCons: € 84.0m) as ARR should amount to € 73.6m, thus reaching the guidance on both ARR growth (+4.4% vs 3-9%) and ARR ratio (91.1% vs ≥ 88%). More importantly however, profitability is expected to outperform expectations, as adj. EBITDA is expected to come in at € 8.0m (eCons: € 7.6m), thus meeting the guidance of € 7.8-8.3m, which has already been upgraded twice during 2023 (initial guidance > € 4m).

Trading at only 1.0x EV/Sales ’23e, the stock is too cheap to ignore in our view, especially as this is below the levels we have seen prior to the turnaround (1.3x in 02/23).

Strong BUY with an unchanged PT of € 11.70 based on DCF.