Original-Research: NFON AG (von NuWays AG): BUY

Classification of NuWays AG to NFON AG

Company Name:	NFON AG
ISIN:	DE000A0N4N52
Reason for the research:	Update
Recommendation:	BUY
from:	23.08.2024
Target price:	EUR 11.70
Last rating change:
Analyst:	Philipp Sennewald

Strongly improved Q2 in line with est. + promising AI acquisition

Yesterday, NFON released its Q2/H1 report, which displays strongly improved profitability as well as a sequential acceleration in growth. Moreover, the company announced the takeover of botario GmbH, a specialist in AI-based communication solutions.

Q2 sales increased by 4.4% to € 21.3m (eNuW: € 21.6m), based on an increased seat base of 665k (+3.8% yoy, eNuW: 666k) as well as up-selling effects in connection with NFON’s premium solutions, which led to an improved blended ARPU of € 9.87 at H1 (+2% yoy; eNuW: € 9.92 in Q2). While non-recurring hardware sales continued to decrease (-19% to € 1.1m), recurring revenues grew disproportionately by 6% yoy to € 20.2m, implying a strong recurring revenue ratio of 94.9%.

Adj. EBITDA improved again strongly with yoy growth of 88% to € 2.7m (eNuW: € 2.9m; reported EBITDA of € 2.3m), implying a margin of 12.7%. Main reasons for this were an improved gross margin of 84.9% (+0.8pp yoy) as well as continuous efficiency gains on the personnel (-5pp yoy) and other OpEx (-4.5pp yoy) level. Another highlight of the release was the strong FCF of € 1.8m, a significant advancement compared to the € 1.1m in H1 '23, following the improved operating performance.

Guidance confirmed. On this basis, management reiterated its FY guidance of recurring sales growth in the mid- to upper-single-digit-%-range with a recurring sales ratio of >90% as well as adj. EBITDA of € 10-12m. Given that the lower end only requires 3.4% recurring sales growth (eNuW: 6.1%) at a 11.1% margin in H2 (eNuW: 13.3%).

Promising acquisition. On Wednesday, NFON announced the acquisition of botario GmbH. The company specializes in the development of advanced AI solutions for business communication, i.e. voiceand phonebots as well as livechats. In our view, botario, which is already boasting a strong client portfolio (Cewe, AXA, Remondis), is seen to be an excellent addition especially to NFON’s contact center solutions, thus creating additional value for customers and partners. Moreover, the low penetration among the NFON client base should allow for meaningful synergies coming into effect. Importantly: botario is highly profitable with an FY ’23 EBITDA margin of 30% and sales of € 2.1m. Going forward, management predicts 40% annual sales growth, which appears in reach following a 100+% CAGR over the past years, with at least stable margins, thus accelerating growth and simultaneously promoting margin expansion at NFON. While the acquistion price was not disclosed, it is said to be in the 'lower double-digit €m' range (eNuW: € 15-20m, 24-32x EBITDA). whereby a partial cash payment (60%) and a three year earn-out period were agreed upon. The cash component will be partially financed via debt (€ 5m undrawn credit line) and existing funds (€ 13.5m liquid assets as of H1 '24). Further detail on the strategic integration of botario will be provided during the company's CMD on 11 September. Mind you, that until closing we are not including the acquisiton into our model.

Besides this, the operational integration of Deutsche Telefon Standard (DTS) should offer further optimization potential from H2 onwards. Management aims to fully integrate DTS in H2 '24e, resulting in the elimination of duplicate structures (i.e. sales, HR, accounting, product development) and hence creating significant margin upside going forward.

Valuation continues to appear attractive, as shares are trading at only 1.1x EV/Sales '24e (9.6x EV/EBITDA) despite the significant operating improvements over the past quarters. The stock hence remains part of our NuWays Alpha List. BUY with an unchanged € 11.70 PT based on DCF

You can download the research here: http://www.more-ir.de/d/30597.pdf
For additional information visit our website: www.nuways-ag.com/research

Contact for questions:
NuWays AG - Equity Research
Web: www.nuways-ag.com
Email: research@nuways-ag.com
LinkedIn: https://www.linkedin.com/company/nuwaysag
Adresse: Mittelweg 16-17, 20148 Hamburg, Germany
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