• Q3: Sales SEK 41m, +27% y-o-y, adj. EBIT margin 27% (25%)
• Raise '24e-'26e sales and EBIT adj. by 4-3% and 10-7%, respectively
• Looking into new growth verticals

Another solid quarter

Q3 sales were SEK 41m, up +27% y-o-y (+30% org., -3% FX). EBIT was SEK 9.4m (8.1m) for a margin of 23% (25%), while EBIT adj. was SEK 11m for a margin of 27%. Lease adj. FCF was SEK 11m (17m). The operating margin was impacted by extra costs related to the ongoing regulatory process, the recruitment of the new CEO and a ramp-up in the R&D department. The company also experienced an increase in working capital, primarily due to prepayments to suppliers. Nevertheless, the company maintained its good cash conversion and strong cash balance.

Improving gross margins ahead

We raise '24e-'26e sales and EBIT adj. by 4% and 10-7%, respectively on the back of the report. It is promising to see that I-Tech has diversified its customer base and that the sales growth of its latest customer (PPG), is growing significantly. In addition, the company will soon have production lines with three suppliers and plans to have at least two of them as standard suppliers. We anticipate that this will impact gross margins positively as early as H1'25 (we estimate an improvement of ~2.5pp). During I-Tech's Q3 conference call, the new CEO discussed I-Tech's new business development initiatives. The company is currently exploring additional growth vectors and is looking into complementary technologies, adjacent markets and step-out businesses.

Long-term potential unchanged

We find it promising to see that I-Tech is continuing its growth journey and that new customers are continuing to move forward with I-Tech, despite the ongoing regulatory process. Two additional customer launches are expected within 6-14 months. The stock currently trades at 11x-5x EV/EBIT in '24e-'26e, and 14x-9x P/E, i.e. ~60-50% below the peer median. We reiterate our fair value range of SEK 55-140.