Crayon profit warning today - a credibility hit, but....

Crayon issued a profit warning this morning and share price is down 15% which we find too much.The problem is volume development relative to guiding and expectation .

Gross sales were up 28% (great) but Gross profit ("real growth") is only up 2% (very poor). The difference is "pretty big" 😅🙈 and 2% growth should be seen relative to market exceptions at 15%-20%. The company f...s up on communication and we investors believed them. The main reason for this huge discrepancy is related to onboarding of some very big clients (from France, Finland, Norway and other places) probably with 0 margin against a portfolio average last 3 years around 6,4%.

The rest of the profit warning was actually pretty good with an Q4 adj EBITDA at 19,6% and working capital at a very healthy -15,1%

We are working on our estimates for 2025 and 2026 and our target price will go down, but let's put some perspective on todays figures.

Perspective

Volume: Crayon, with 11% Gross Profit growth in 2024, take new market shares on a worldwide basis. We can't see any peer growing more. During the last weeks we have studied SoftwareOne (Europe/worldwide), Bytes (UK), Softchoice (Canada/USA) and Softcat (UK). None are increasing Gross Profit more than Crayon, which means you are probably nr 1 worldwide. Not bad 🙂

Profitability: Net income (after tax) in 2024 will probably end up around 350MNOK and it's improving fast (~500MNOK better than 2023). Adj EBITDA margin is back on 2022 level (18,7%) and gross profit volume is up 40% since 2022. You are growing profitability faster than all your peers and you still have room to improve.

Entering 2025: Crayon enters a new year firing on most cylinders; Microsoft guiding is strong and so are Crayons 2025 guiding today. The problem is guiding credibility since the volume miss in Q4 is so big. Our volume estimate will be lower than guiding but working capital and margins are within our range. Our current target price will be lowered but you can still earn a lot.

Perspective summary: Congratulation with fixing working capital in 2024, improving margins a lot, stealing market share and growing more than any other peer.

A piece of advice - Improve your volume understanding and focus 100% on your own business since shareholders will not accept SoftwareOne's bid on the company.

Next week we'll send out a 12 pages report on Crayon vs SoftwareOne and after Q4 we will send out a full Crayon and a peer update more relevant than you have ever seen.

Stay tuned.

Disclaimer:
Hvaler Invest is a significant shareholder so you cannot trust us (or perhaps you can?)

All the best,

Sverre and David

Hvaler Invest AS

Lillestrøm, Norway

31.01.25