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This report is prepared for the Warsaw Stock Exchange SA within the framework of the Analytical Coverage Support Program 3.0.
Sector: TMT – IT software & services
Fundamental rating: Buy (→)
Market relative: Overweight (→)
Price: PLN 10.20
12M EFV: PLN 17.3 (↓)
Market Cap: US$ 7 m
Bloomberg code: LSI PW
Av. daily turnover: US$ 0.01 m
12M range: PLN 10.00-16.35
Free float: 70%
â– Material growth of costs and revenues in 2022. In 1-3Q22 the Company’s revenues rose 20% yoy to PLN 39.8 million supported by the demand rebound in the HoReCa industry and inflationary growth of costs and goods offered by LSI Software. Nevertheless, the revenues growth was accompanied by an equally dynamic growth of costs resulting from a salaries increase, PLN weakening (the distribution segment’s purchases made in US$), and chiefly from the expansion of sales teams for new business lines: restaurant robots distribution and software sales in the SaaS model.
â– PUDU Robots distribution. The PUDU Roboty profile on Facebook informs that LSI-distributed robots are used in numerous restaurants (Pizza Hut, KFC, Da Grasso), hotels, fairs, entertainment centers in Poland. We assume that at the end of 2022 and 2023 LSI will rent 85 and 150 robots, respectively, which will enable the Company to generate c. PLN 1 million and PLN 3.9 million, respectively. We expect a further increase in a number of rented robots in the coming years. Besides, it is worth reminding that LSI charges a monthly fee for each rented robot, hence the revenues will recur in the following years.
â– Software sales in the SaaS model are another business arm that may exert an important impact on the Company’s future financials. A SaaS model will be implemented in three areas: gastronomy, marketing, and hotel business. LSI believes that these new solutions will not cannibalize old products, as they are addressed at smaller clients looking for a cheap subscription model. We have not included the revenues from this business segment in our forecasts.
â– 4Q22E. We tentatively 4Q22 revenues at PLN 16.7 million (down 19% yoy) vs the base quarter’s record high sales thanks to the cinema operating revenues. Ultimately, we forecast 4Q22 EBITDA at PLN 6.6 million (up 22% yoy), with NP at PLN 4.4 million (down 12% yoy).
â– Risk to financial forecasts. Moderate/ high. The Company’s further growth depends on the HoReCa industry and cinema business which are relatively vulnerable to the economic slowdown. 5.4 4.6-8.5 13.1 7.2 6.2-15.2 16%-12%-24%-25%-44% 75.6 15.0 8.5 6.9-11.6 previous 62.3 16.0 9.7 8.0-19.1 change 21%-6%-13%-14%-39% profile and we expect a 33%/ 49%/ 23% EPS yoy growth in 2023/ 2024/ 2025 which will make the Company’s development to resemble business models of growth companies.
â– Forecast changes. 3Q22 sales were higher than our expectations and in the years to come we expect stronger growth dynamics due to inflationary factors. In consequence, we raise our revenue forecasts for 2022/2023/2024 by 6%/16%/21%. On the other hand, 2Q22 brought about higher than expected SG&A costs with slightly lower margins, thus we have adjusted our f inancial assumptions accordingly.
â– LSI perceived as a growth company? New business lines improve the Company’s growth Catalysts 1. Attractive current valuation
â– Valuation. Our target 12M EFV drops by 14% to PLN 17.3 per share (from PLN 20.0 per share) because of lower ST financial forecasts (due to intensive investments in development).
â– Recommended action. We continue to be positive towards LSI Software and keep our recommendations: LT fundamental Buy and ST relative Neutral, intact. The Company continues intensive investments in new business lines development which burden its financial results. We expect a gradual improvement of financials in 2023.
Analyst: Tomasz Rodak, CFA
GPW’s Analytical Coverage Support Programme 3.0
