• We trim '25e-'26e ARR by 1% on continued macro weakness
• Still awaiting a return in B2C business momentum
• EV/ARR ~2x, '25e EV/EBITDA ~8x

What to look for in Q4'24e

For Q4, we expect reported ARR of SEK 72m and sales of SEK 19m. These figures imply y-o-y growth rates of ~5% and ~3%, respectively. We also anticipate EBITDA of SEK 4.8m, which corresponds to a margin of ~25%, and operating cash flow of SEK 4.6m. Given the linearity of the ARR growth and the large share of recurring, fixed revenues, it is unlikely that sales will be more volatile than history suggests. It is still unlikely that volumes will recover during H2'24 for B2B and B2C clients, and for Litium this means that the company's operating leverage remains unused. We argue that it is a matter of time before conditions improve to the degree that this operating leverage can be unlocked.

Estimate changes

We trim '25e-'26e ARR and EBITDA by 2% and 1-2%, respectively. This is mostly due to continued macro-related headwinds facing Litium's B2C clients. Litium is set to start benefiting from higher client volumes once conditions improve for its B2C clients. This volume-related tailwind appears more likely to start in H2'25e than H1'25e (as previously assessed). We maintain our view that the company's long-term prospects remain intact, as Litium is positioned to benefit from the growth of both its B2C and B2B clients.

Valuation

Our revised estimates imply that the company is trading at an EV/ARR multiple of ~2x and at a '25e EV/EBITDA of ~8x, whereas Nordic IT services peers are trading at a '25e EV/EBITDA of ~13x.