* Sequential sales decline, but order activity has improved
* We lift '26e/'27e/'28e EBIT by 9%/7%/6%
* 14-11x '26e-'27e EV/EBIT
Sequential deterioration...
Ovzon's Q3 was broadly in line with expectations, with a sequential decline in sales, as Ovzon has not yet replaced contracts that have expired. While sales missed ABGSCe/Modular Finance consensus by 4%/6%, it was mainly a result of lower Terminal sales, which tend to be lumpy. Meanwhile, SATCOM was in line with our forecast and fell 8% q-o-q for the aforementioned reasons. Furthermore, Q3 opex was lower than expected, pushing EBIT 22% above consensus. Finally, FCF was weighed down by a normalisation of NCW, but it will be beneficial again in Q4 based on current customer payment plans.
...but orders are starting to pick up
We believe that some of the lukewarm order activity in H1 can be explained by: 1) Ovzon is a small company bidding for large contracts, and 2) procurement has become more complex as countries increasingly look to collaborate on SATCOM projects. That said, order activity has improved since the summer (Q3 orders totalled SEK 119m vs. SEK 88m in H1), and we continue to believe that Ovzon's track record and position bode well for this trend to continue. The Q3 backlog sits at SEK 570m, providing comparatively high visibility for the coming quarters. We lift '26e/'27e/'28e EBIT by 9%/7%/6% due to higher sales and margin assumptions.
Multi-orbit networks are arguably more resilient
Recent news has highlighted more problems with using Starlink in Ukraine. This highlights the need for resilient communication systems that are not dependent on a single network, favouring players like Ovzon, which operates GEO satellites. In terms of sold-out capacity, we estimate Ovzon-3 utilisation is at ~40%, and we expect this figure will increase to 75% by 2027. The stock is trading at 14x-11x '26e-'27e EV/EBIT, with 7-8% FCF yields.