Lemonsoft’s growth figures in Q2 were largely in line with expectations, and organic growth (1.4%) turned slightly positive, as we expected, after four negative quarters. The inorganic growth boost provided by Finvoicer was slightly lower than our forecasts for the quarter.
However, adjusted operating profit fell short of our expectations, as other operating expenses were higher than anticipated. The report mentions “the timing of certain development projects” as the reason behind the weakened result, so this presumably explains the difference in expenses.
As expected, the company kept its outlook unchanged, and the outlook for H2 points toward picking up growth and improving profitability. This is also in line with our forecasts. H1 results show 15% growth and a 17.7% adjusted operating profit, so performance must improve to reach the guidance. Q3 is always a strong quarter in terms of profitability, and recent acquisitions also support growth for the rest of the year. Thus, the guidance looks highly achievable.
Atte has published a new company report on Lemonsoft.
Lemonsoft’s organic growth turned slightly positive in Q2, in line with our expectations, and based on outlook comments, development is expected to continue improving towards the end of the year. However, the difficult market situation still creates uncertainty over short-term performance, while the stock’s valuation is already pricing in a moderate recovery looking toward next year. Therefore, the risk/reward ratio currently appears neutral and suggests waiting for better buying opportunities in the stock.
Upon initial review, Lemonsoft seemed like a fairly sexy SaaS software development company for which one could easily justify high valuation multiples. In practice, however, growth is mostly generated through acquisitions, and organic growth is weak, at least at the moment. With ROE around 15%, a valuation level of P/B = 2 could be quite justifiable. However, the current valuation is almost double that, so the stock doesn’t seem very attractive in that regard.
On the other hand, almost half of the personnel work in R&D, which significantly impacts profitability. To balance that out, it would be nice to see some organic growth or at least hear about better-integrated products. Furthermore, security issues certainly don’t make this any more of an attractive investment. Does anyone have any insight into what the R&D staff is currently working on?
At least the debt level is in good shape, so even larger acquisitions could be possible. One might dare to leverage a relatively steady business more heavily without financing issues. However, the product offering would likely become even more fragmented, or at least that’s how it appears based on my research.
Here are Atte’s preview thoughts along with the company report.
We are adjusting Lemonsoft’s target price to EUR 6.5 (prev. EUR 6.4) and upgrading our recommendation to Accumulate (prev. Reduce). Lemonsoft reports its Q3 results on Tuesday, November 5. We expect the company’s growth to have continued, driven by acquisitions, and the organic growth trend, which turned positive again in the previous quarter, should have continued in the right direction. However, acquisitions and increased investments in the development of the technology platform this year will weaken relative profitability compared to the comparison period, and in absolute terms, we expect stable earnings development. The weak market situation continues to create uncertainty over the company’s growth outlook, but we believe the situation will gradually ease in the coming years. In light of this, the stock’s current valuation (2025e adj. EV/EBIT 13.5x) is starting to look moderate.
Lemonsoft’s Q3 revenue fell short of our forecast, as organic growth (Q3’24: 1.0%) has not yet picked up quite as expected in our forecast (5%). Profitability, however, exceeded our forecast, and at a quick glance, both the gross margin (87.2%) and the operating expense structure were slightly better than we expected.
According to the company, the organic growth of recurring revenue was clearly higher than the reported figure, which is the same comment as in previous quarters, and as such, this underlying development is positive. It seems that consulting and other revenue once again slowed down growth.
As noted in the preview, the guidance for the current year is achievable through acquisitions alone, without a pickup in organic growth in H2. Thus, the company reiterated its guidance as expected:
Based on the outlook comments, the challenging market situation continues, which is not exactly a surprise considering the development of the Finnish economy.
From the new CEO’s comments, it can be seen that in the future strategy, more focus will be placed on industry and wholesale, where the company holds its strongest positions.
Here are some quick initial takeaways from the report, and now I need to dive deeper into the details. Preliminarily, there will likely be no dramatic changes to the earnings forecasts, as the softness in organic growth is partly offset by better profitability.
We reiterate our Accumulate rating for Lemonsoft and EUR 6.5 target price. Based on the Q3 report, we slightly lowered our expectations for the company’s organic growth recovery pace, which was offset in terms of earnings by increased profitability forecasts. In our assessment, weak organic growth is currently weighing on the share, but the keys to accelerating the pace are in the company’s hands, in addition to which the market situation will turn for the better at some point. In this light, the stock’s current valuation (2025e adj. EV/EBIT 13x) does not look particularly demanding.
Quoted from the report:
Lemonsoft’s balance sheet is in good shape, and net debt was a moderate EUR 5.5 million at the end of Q3. Following the most recent acquisitions, the amount of net debt increased, but in the big picture, there is still plenty of room for maneuver to implement the strategy and make new acquisitions. Presumably, after two transactions, the company will now take a short breather on the acquisition front and continue to focus on the integration of the latest targets for the remainder of the year. Our understanding is that the sales of both Spotilla and Applirent have gone so well recently that instead of integration, the focus has been particularly on onboarding new customers.
New profit forecast for 2024:
Lemonsoft estimates that the revenue for the financial year 2024 will grow by 9–11 percent compared to the financial year 2023, and that the adjusted operating profit will be 22–24 percent of revenue in 2024.
Previous profit forecast for 2024 (issued on 15.2.2024):
Lemonsoft estimates that the revenue for the financial year 2024 will grow by 10–18 percent compared to the financial year 2023, and that the adjusted operating profit will be 23–28 percent of revenue in 2024.
Here are Ate’s preliminary comments as Lemonsoft publishes its results next week on Thursday, Feb 20.
Given the mild profit warning after December’s expectations, the Q4 figures do not contain a significant surprise element, and the focus is particularly on the outlook for the current year. Although the softness in the consulting business hindered Lemonsoft’s organic growth last year, the underlying fundamentals of the continuous SaaS business have gradually developed in the right direction. In light of this, the prerequisites for revitalized growth and improved profitability in the coming years are good, for which the Q4 report is sought for further confirmation.
Lemonsoft’s Q4 figures fell short of our expectations, as consulting revenue decreased even more than expected and the year-end cost level was higher than our forecasts. It would seem at first glance that the overshoot is due to the ongoing Azure migration on the technology side, which raised the cost level for the entire last year and will continue to do so in the early part of this year.
The outlook for 2025 is also softer than our expectations regarding profitability. Our forecast expected approximately 5% growth and 26% adjusted operating profit for this year. The cost level for this year also appears to be higher than our expectations.
In the big picture, the market situation does not seem to be getting worse anymore, and new sales showed signs of picking up towards the end of the year. Development would thus be moving step by step towards improvement, but a notch slower than our current expectations. Of course, very modest growth expectations are currently priced into the stock’s valuation.
After a period of silence, Lemonsoft is again active in investor communications, and today there will be a webcast at 1 PM:
Atte has published a new company report on Lemonsoft.
We reiterate our Add recommendation for Lemonsoft and revise our target price to EUR 6.5 (previously EUR 6.7). The company’s Q4 figures and 2025 outlook were slightly below our expectations, but in the big picture, the trend for the company’s SaaS business as well as the general market situation is heading in the right direction this year. Lemonsoft is currently undergoing a transformation phase, led by the new CEO, where operations are being put in order across sales, implementations, product development, and technology platform migration. So far, these have mainly burdened profitability, but this year they will gradually enable a return to a path of profitable growth. Considering this and the market situation likely to pick up in the coming years, the stock’s valuation (2025e adj. EV/EBIT 16x) is, in our opinion, reasonable.
Quoted from the report:
Balance sheet in good condition
Lemonsoft’s balance sheet is in good condition, and net debt at the end of Q4 was a moderate EUR 2.8 million. Cash and cash equivalents at the end of the year amounted to EUR 7.7 million. Even after the spring dividends (EUR 2.6 million), there is still ample room for maneuver to implement the strategy and make new acquisitions, as the company’s business also continuously generates more cash flow. Lemonsoft also initiated a small share buyback program in the autumn, for which a maximum of EUR 2 million will be used.
Atte and Tomi chatted about Lemonsoft, which clearly flies under the radar.
New winds are blowing in Lemonsoft, which flies under the radar of the general public, with the change of CEO. The valuation of the stock, which plummeted after the listing, is starting to be cautiously attractive, provided that the growth of the SaaS business accelerates and profitability follows. Analyst Atte Riikola reviews Lemonsoft’s recent development and outlook for the coming years.
Topics:
00:00 Introduction
00:18 Development after listing
02:32 Winds of change are blowing
06:49 Profitability expected to recover in the coming years
11:47 Valuation is starting to be attractive enough
Here are Ate’s pre-earnings thoughts, as Lemonsoft releases its Q1 results on Friday.
Lemonsoft reports its Q1 results on Friday, April 25th. We expect the company’s revenue to have grown, driven by acquisitions, and at the same time, the result to have improved slightly from a rather soft comparison period. Lemonsoft is currently undergoing a transformation phase, where, led by the new CEO, things are being put in order regarding sales, implementations, product development, and the transition of technology platforms. So far, these have mainly burdened profitability, but towards the end of the year, they will gradually enable a return to a path of profitable growth. We will therefore particularly follow the company’s comments on the progress of these projects, and the development of the market situation is also of interest.
Lemonsoft delivered Q2 figures that clearly exceeded expectations:
Even the Robo-comment had observations from AI that were quite on the right track:
Organic growth rose to 3%, while our expectations were still for zero growth. The company’s operational cost structure was largely in line with our expectations, and the slightly stronger growth now flowed to the bottom line thanks to a very high gross margin. Reported operating profit was further inflated by items related to the recognition of additional purchase price (EUR 0.9 million). This, however, indicates that not all defined targets will be met regarding this acquisition.
Good operational development is partly weighed down by a clear increase in credit loss provisions: “The credit loss provision for trade receivables and financing receivables has been re-evaluated, and the provision at the end of the review period is 1,109 thousand euros (126 at the end of 2024).” These mainly relate to Finvoiceri, which also has a invoice financing business.
With a quick glance, the big picture remains unchanged, and Lemonsoft is gradually moving towards a path of profitable growth this year through major changes. More on this in Alpo’s review.
And the webcast starting at 1 PM can be followed here:
Lemonsoft’s CEO Alpo Luostarinen was interviewed by Aten.
Topics:
00:00 Introduction
00:17 Q1 summary
02:17 Factors behind growth
03:27 Consulting development
04:30 Profitability and results
06:02 Credit loss provision
07:02 Scale of the invoice financing business
07:38 Background of change negotiations
08:54 Impact of technology platform migration
10:04 Key focus areas
11:08 Changes in market situation
Mr. Riikola has prepared a new company report on Lemonsoft.
We reiterate our Add recommendation for Lemonsoft and revise the target price to EUR 6.7 (previously EUR 6.5). The company’s operational result exceeded our expectations in Q1, and the trend in an uncertain environment is, as expected, gradually improving. Lemonsoft is currently undergoing a transformation phase, led by the new CEO, where things are being put in order regarding sales, implementations, product development, and the transition of technology platforms. So far, these have mainly burdened profitability, but this year they will gradually enable a return to the path of profitable growth. Considering this and the market situation likely to pick up in the coming years, the stock’s valuation (2025e adj. EV/EBIT 17x) is, in our opinion, reasonable.
Quoted from the report:
According to our forecast, Lemonsoft’s adjusted earnings per share would grow by an average of approximately 12% per year in 2025-2027. In addition to this, the company is very likely to make acquisitions that accelerate earnings growth.
