SoftwareOne Q4 - bullshit continues

It's not easy to paint a picture of what's going on in SWON but let's give it a try.

Cost reductions will be bigger and moving faster. Right...?

We are not convinced. Yes, target is up to 70MCHF (from 50) and execution will be Q1 (not Q2) and "achieved year end" is already at 58MCHF. It looks impressive, but the problem is the following.

·     After Q2 SWON announced that their "operational excellence program" was finished and it was stated that annual effects were 76MCHF. The program started a year earlier, one off was taken and effects appeared gradually through the end of 2023 and first half of 2024. It means that accounting figures in 2024 should improve with 60-70 mill CHF give or take. Do you follow?

·     The problem looking into actual costs for the full year is;

o  they are UP around 10% which means UP 50 MCHF

o  you reduce with 70 but increase with 50 meaning "other costs" outside "operational excellence program" is up with 120 MCHF...

o  Do you believe it? We don't. This is "fake reporting"

·     The problem now is trusting this last cost program to actually reduce accumulated cost. We think it will, but it will probably not be close to announced 78MCHF

Growth and profitability deterioration

Q4 growth was -5,1% in CCY and adjusted margins dropped rapidly with 6,7pp to 24,9%. Even in a situation where adjustment is at a new all-time high you end up with an accelerated deterioration of volume and profit, underlying development is getting worse. If you look at the very unprofitable consultancy business, it actually turned negative in Q4 while Crayon is on the way towards better margins and figures in their consultancy business. Mismanagement is written all over the report from services sector (consultancy).

Cash and dividends

Since they pay dividend based on "adjusted earnings" they offer 0,30EUR in dividend and they are burning cash rapidly (down with almost 200MCHF in 2024). Not impressive, not prudent.

Guiding for 2025 is not at all credible

Some Norwegian analysts are pushing guiding ahead of themselves and support the idea about a rather massive improvement in reported figures and improved margins. It's naive. Margins and volume are going the wrong way, adjustments will not suddenly disappear, and a guiding miss will occur (as always). Our view is a lot of new "adjustments" and possibly write-offs in the services sector. The guiding miss in 2024 was significant on both volume and adjusted Ebitda (and even worse on reported figures).

The Beauty and The Beast

If you looked for SWON improvements and still was open for this terrible idea of a merger you should certainly close it down now. We note that our prediction (CFO is history) was right. Q2 is a bit late in my view, he could probably go on garden leave next week 🙂

To Crayon management

Let SWON cut sales and marketing cost and continue stealing market share from them. Please do not spend time on any planning activities like you said in Q4 presentation.

Stay tuned, Peer analyses and Post Rhipe analyses is progressing.

Until then - our target price on Crayon is 195 NOK and nothing in this SWON report made us change our mind.

Best regards,

David and Sverre 

Hvaler Invest AS
Lillestrøm, Norway
21.02.25

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