Yesterday, q.beyond released weak Q3 figures, showing a slowdown in growth and profitability even below our recently revised estimates as well as significantly below consensus. In detail:

Q3 sales increased 5.4% yoy to € 45.5m (eNuW: € 45.1m; eCons: € 46.1m), which was predominantly driven by the accelerated recovery of the SAP segment with 12.3% growth to € 8.8m (eNuW: € 8.7m) following a sales offensive in recent quarters. However, the otherwise strong Cloud & IoT segment showed a significant slowdown in growth with a yoy increase of 3.8% (vs 13.4% in H1; -3% organically, excluding productive data acquisition) to € 36.6m (eNuW: € 36.4m). Besides the general market weakness, the company states price reductions for key customers (e.g. Tchibo) as the main reason for the performance.

Q3 EBITDA decreased 95% yoy to € 0.1m (eNuW: € 0.6m; eCons: € 1.2m), implying a 0.2% margin (-380 bps yoy). Here, especially the reduced segment margin of the Cloud & IoT segment (-130 bps yoy) following inflationary cost increases as well as a substantially lower other operating income of € 0.2m (vs € 1.6m in Q3’22) weighed on profitability.

Despite the weak operating result, management confirmed the FY guidance of € 185-191m sales, € 5-7m EBITDA and FCF of > € -4m. While the sales (eNuW: € 186m; eCons: € 187m; 9M: € 138m) and FCF (eNuW: € 1.4m; eCons: € -2.2m; 9M: € 1.1m) outlook look in reach, the EBITDA target appears more than ambitious in light € -0.1m after 9M and will only be reached thanks to a significant other operating income contribution. This however depends on a decision by the tax authorities concerning the Plusnet sale in 2019, which will, according to management, at least partly turn out in favor of q.beyond leading to the anticipated one-off. Adjusting for this, the EBITDA is seen at € 0.3m (eNuW).

Going forward, especially the increasing near- and off-shore focus, higher utilization rates as well as the one q.beyond strategy are seen to have a positive impact on profitability. Moreover, the net cash position of € 37.3m should be partly put to work in the form of value accretive M&A in 2024e, leaving a certain upside to our estimates.

Despite shares looking mispriced after the recent weakness and the stock trading at only 0.2x EV/Sales 2023e, there is no catalyst for a possible re-rating in sight, in our view. We confirm BUY with a PT of € 1.00 based on DCF, while at the same time highlighting the absence of catalysts in the short term.