USU will publish Q1 results on Thursday, May 25. Here is what investors can expect from the release:  

For Q1, we expect dynamic top-line growth of 11% yoy to € 32.8m on the back of a strong Service Business as well as the company working off its record order backlog (€ 83m at the end of FY22). The Product Business, is seen to show a slowdown in growth, which should be driven by the transition towards a SaaS dominated business model. Hence, license revenues look set to slightly decline yoy (eNuW: € 2.5m) while the steep growth of SaaS revenues should continue (eNuW: € 4.0m; +20% yoy).

EBITDA is expected to grow in line with sales to € 3.8m, implying a stable margin of 11.7%. The flat margin development is the result of the increasing share of SaaS revenues (lower initial sales) and a higher use of freelancers considering the strong order intake. On the other hand, increased personnel costs in light of general wage inflation should have been entirely offset by price increases, eNuW.

As Q1 is usually the weakest quarter, the company is seen well on track to reach its FY23e guidance of € 134-139m sales (eNuW: € 138.5m) and EBITDA of € 16.5-18.0m (eNuW: € 17.6m), which implies a margin of 12.6% at mid-point.

Overall, the investment case remains fully intact, especially as USU continues to win significant projects. Just last week, the company announced BayWa r.e. AG, a leading renewables player, as a customer for its IT Service Management (ITSM) solution. This is already the second ITSM customer win in Q1 following the Kammergericht Berlin (signed in April). Importantly, both contracts are SaaS deals, underpinning USU’s switch from license towards SaaS. By 2026e, the company aims for a >75% SaaS ratio for new customers. This should in turn allow for significant margin expansion, as it usually takes only three years until the recurring SaaS payments exceed the initial licensing + maintenance fees.

Despite the recent strong share price performance, valuation continues to look undemanding, as the stock is trading at 22.5x PE FY24e, a clear discount to the 2-year forward-looking average of 25.1x.

We hence reiterate BUY with an unchanged PT of € 32.00 based on DCF.