A very solid quarter

  • Growth came in at 14% (12% in LCY), which was slightly behind but very good relative to peers. We estimate Q4 growth (the bigger quarter) to 20.2%.
     

  • Profitability (adj. EBITDA margin) came in at a very strong 16.6%, showing cost control in the quarter, and that they are doing what they said they would, namely increasing profitability 👏 Consulting delivered 9.9% EBITDA% up from 5% last year.
     

  • Net working capital came in as expected and cash was also spot on our expectations. Crayon has delivered strong cash control over the last 4 quarters and last year's noise is history. Kudos to CFO Brede and the organization!
     

  • Check, check, and check 👍👍👍

Other highlights:

  • Guidance for the full year was slightly lowered on volume to 15-17% growth, slightly increased on the EBITDA% guiding to 19-20%, and slightly improved on NWC to -10% to -15%. Check, check, and check. 👍👍😃
     

  • Incentives was a major topic leading up to Q3 since Crayon's main competitor, SoftwareOne, released a depressive profit warning, citing incentives changes in Microsoft as one of the three main reasons for their grim outlook. In the quarterly presentation and the subsequent meeting we attended with management, this topic was given a lot of attention. The key takeaway from Crayon CEO Melissa in this area was that the incentives changes will have a positive effect on Crayon going forward. This was said with confidence and strong arguments to back it up. 💪
     

  • Q4 growth was also a topic in the meeting after the presentation, and Crayon pointed to 1) contracts won in H1 that will take effect from Q4, 2) positive demand development in consulting together with hiring additional consultants, and 3) the business area software direct growing in Q4 (particularly in Europe) as they have increased sales resources and are most likely stealing market share from SoftwareOne (the last one is our take 😊). All arguments supporting our expectations that Crayon will deliver very strong Q4 growth.

Conclusion - the road to 252 is shorter. ✌️

Crayon delivered a strong quarter. We will not make any major changes to our estimates, but we are more confident in our 2025 estimates than we were prior to Q3 and remain at our target price of 252. We believe that the road to 252 is a lot shorter than most think…and some analysts have upgraded estimates slightly, which will be repeated after Q4. 😬

Another hurdle has passed on their way to world champion. 🥇

(Foto: Getty Images)

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

Best regards,

Sverre and David.

Lillestrøm, Norway. 08.11.24