• Solid Q3, with more sequential improvements
• '24e-'26e sales down 5-6% on slightly softer orders than expected
• We expect the positive operational momentum to continue in 2025

Positive momentum continued

Ovzon's trend of gradually improving sales and margins continued in Q3, driven by recent order momentum. Q3 sales of SEK 95m represented organic growth of +34% y-o-y (+23% above our forecast), driven mainly by strong terminal sales (SEK 29m in the quarter). Combined with good cost control, Ovzon delivered its first positive EBITDA since Q1'20: SEK 12m (vs. ABGSCe SEK 4m). As the Ovzon-3 project was commercialised in July, Ovzon has now started to depreciate the asset, with D&A of SEK 35m in Q3 (vs. SEK 7m in Q3'23), consequently impacting EBIT. FCF remained negative, at SEK -41m, driving NIBD (excluding leasing) to SEK 632m, but the recent follow-up order with SSC should drive positive FCF in Q4e, as payments from this contract will be received in 2024.

Estimate changes

We calculate that Ovzon-3 contributed sales of ~USD 1m in Q3 (~8% utilisation) - driven by the USD 6.2m US DoD contract - and we expect this to gradually improve in Q4 and 2025. However, the Ovzon-3-related order momentum has been slightly slower than expected, leading us to reduce '25e-'26e revenues by 5-6%, and the corresponding EBITDA estimates by 4%. Our EBIT revisions are positive due to lower D&A assumptions following the extension of the satellite's life to 18 years (previously 15 years).

Poised for improved sales in 2025e

The successful launch of Ovzon-3 is a major step for the company. In addition to improved sales (at a higher price point), margins and FCF, the launch means that Ovzon's reliance on third party capacity is reduced, while customer diversification and order durability (should) improve. We continue to see improved sales in 2025e and note that the stock is trading at 8x-5x '25e-'26e EV/EBITDA (and 2-15% lease-adj. FCF yields).