Ipopema recommends "Buy" for Safetech, with a target price of 3.7 lei per share

Analysts at Ipopema Securities recommend "Buy" for the shares of cyber security company Safetech Innovations (SAFE), with a price target of 3.7 lei for the next twelve months, according to the latest report published on the BVB Research Hub website.

Yesterday, at 1:30 p.m., SAFE shares were trading at 3.03 lei per share, which means that the Ipopema analysts' estimate implies a 22% increase.

According to the report, Safetech reported for the second quarter of the year a net profit of 2.7 million lei (increasing by 135.4% in quarterly dynamics, respectively by 22.9% in annual dynamics), with 34 % below the estimates of Ipopema, of 4.1 million lei, mainly due to the increase in revenues below expectations.

Total revenues reached 7.5 million lei (+24.8% in quarterly dynamics, +2.8% in annual dynamics), 27% below Ipopema's expectations of 10.3 million lei. "Revenue growth may have been below expectations as a result of lower investments by companies, lower aggregate demand for goods and services in Romania and high interest rates," the report states.

Operating expenses reached 4.4 million lei (-6.8% in quarterly dynamics, -7.8% in annual dynamics) and were 21.1% below the expectations of the Ipopema team, determined by higher expenses with materials and consumables, as well as lower staff costs.

The costs of raw materials and consumables amounted to 3.4 million lei (+13.5% q/q, +51.1% y/y), 9.4% above Ipopema's expectations of 3.1 million lei. Employee benefits reached 2.4 million lei (-16.6% q/q, +12.3% y/y), below the analysis team's estimates of 2.8 million lei. Depreciation and depreciation expenses amounted to 0.7 million lei (+0.8% q/q, -8.8% y/y) against expectations of 1 million lei.

In this context, the operating profit of Safetech Innovations for the second quarter of the year amounted to 3.1 million lei (+135% q/q, +22.4% y/y) with 33.9% below Ipopema's expectations, of 4.8 million lei. Safetech's operating margin was 42%.

From financial activities, the company reported a negative result of 0.1 million lei, 20.3% below expectations.

"The financial expenses reported by the company are expenses related to leasing contracts as well as currency differences; the company has no debts on the balance sheet," according to the report. "The results were significantly lower than our expectations, driven by lower revenue growth, even if the comparison with historical figures shows robustness. We believe the company is still in a favorable position in terms of long-term demand, where cybersecurity products and solutions can gain fundamental importance as a result of widespread technology adoption," the report said. Hippopotamus. "However, it appears that Safetech is still being hit by lower business investment, along with government spending cuts. We expect that the demand in Romania will increase again, especially starting from the fourth quarter of 2023. Safetech's subsidiaries that operate at the international level do not yet have positive developments, which means that they currently represent cost centers", it is also pointed out in the report, adding that in the opinion of the Ipopema team, the activity of the branches can catch up with the dynamics of Safetech's activity in Romania.

In the previous report, published on the BVB Research Hub website on May 22, the Ipopema team gave a target price for Safetech shares of 3.6 lei per share. Analysts initiated coverage of the cyber security company in April this year, indicating a target price of 3.4 lei for SAFE shares, using two valuation models - Discounted Cash Flow model (DCF) and Dividend Discount Model (DDM).