Topic: USU published soft Q2 prelims, displaying a significant sequential slowdown and growth as well as a margin decline in connection with one-off expenses. On this basis, management announced to cut the FY sales and EBITDA guidance while the mid-term guidance was confirmed.  

Q2’23 sales are set to increase by 2.8% yoy to € 31.6m (eNuW: 33.6m), as the strongly growing SaaS revenues (+25.1% yoy to € 4.2m; eNuW: € 4.0m) as well as the growth in consulting revenues (+13.8% to € 19.7; eNuW: € 19.5m) could not in full compensate for the strong decline in license sales, which came in at only € 0.8m (-75% yoy; eNuW: € 3.0m). Although a continuous slowdown in license revenues has been reflected in our model, due to the SaaS offensive, this steep decline came as a surprise which is mainly explained by prolonged sales cycles.

Based on this as well as increased costs in connection with AI projects in the Knowledge Management segment, the EBITDA deteriorated and is seen to come in at only € 2.1m (eNuW: € 4.2m), implying a 6.6% margin (Q1’22: 11.7%).

Against this backdrop, management decided to cut the FY guidance and is now expecting sales in the range of € 132-139m (old: € 134-139m) and an EBITDA of € 13-15m (€ 16.5-18.0m). However, the mid-term target (until 2026) of 10% sales CAGR (organic), 25% SaaS CAGR and an EBITDA margin of 17-19% was confirmed.

Although the profit warning might have caught investors off guard, after the company was unexceptionally delivering on their outlook in recent years, it should not be seen as a major push back to the story. Mind you, that the slowdown in license sales and the related margin decline was anticipated as the company aims for a higher share of SaaS deals (eNuW: +80% by 2026e), which provide lower initial revenues at a comparable cost base. On average, it takes roughly three years until the SaaS payments exceed the initial license and maintenance fee, thereby driving margins as there are hardly any incremental costs.

As shares came down heavily after the ad-hoc, valuation appears ever more undemanding, trading at only 19.6x PE ‘24e, a clear discount to the 2-year forward-looking average of 25.1x. BUY on weakness with a new PT of € 30.00 (old: € 32.00) based on DCF.