Q2 outlook: further improvements in sales and profit figures

NFON will report its Q2 figures this Thursday. We expect further sequential growth and a significant improvement in profitability year-on-year.

Subject: NFON will announce its Q2 figures this week, Thursday. Here’s what you can expect:

Second quarter revenue is expected to rise 6% to €21.6 based on increased seat count (eNuW: +4% yoy to 666k) and price increases implemented in the quarter. Recurring revenues are expected to grow slightly more strongly by 6.4% to €20.3m, implying a recurring revenue ratio of 94%, providing good visibility given the company’s excellent customer retention (churn rate

Adjusted EBITDA is expected to show a further sequential improvement of €2.9 million in the second quarter.implying a margin of 13.4%, a strong improvement of 6.3pp year-on-year. The main driver for the increased efficiency was the implementation of ongoing cost-saving measures related to reduced marketing and personnel costs. Reported EBITDA is expected to be €2.5m (eNuW).

Against this background we expect management to confirm the FY guidelines from 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 as the lower end would require only 3.4% recurring revenue growth on an adjusted EBITDA margin of 10.7% in H2. Moreover, FCF should be positive again and even slightly up versus the previous quarter (Q1: €0.2m).

DTS integration offers further optimization possibilities. At the beginning of Q3, NFON announced the completion of the formal merger with Deutsche Telefon Standard GmbH (DTS), which was acquired in 2019. DTS offers a similar product portfolio that is not yet fully integrated, with its own salesforce, HR, accounting, etc. Going forward, DTS will be fully integrated into NFON, which should deliver significant synergies that will be visible already in H2’24e.

Overall, NFON remains well positioned to benefit from the growth potential in the still underpenetrated European and especially German PBX market. Furthermore, cross- and upselling of well-perceived premium solutions such as CC Hub should ensure continued ARPU and margin expansion going forward.

The valuation still doesn’t seem demanding, in our view, as the shares are trading at a meager 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.

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