Operating scalability demonstrated - Q3 initial comment

Q3 sales and margins were both stronger than we had estimated. Higher sales volumes and a significantly better gross margin drove the result, despite higher opex. The Civil segment returned to growth, although not as strongly as we had expected. This was more than offset by strong growth in Defence, primarily driven by the TCNS contract. In our view, the 88.6% gross margin highlights the favourable economics of TCNS and indicates limited, if any, hardware content.

Civil segment returns to Y/Y growth. Based on our calculations, this is the first quarter in four that the Civil segment has delivered Y/Y growth. We believe this was primarily driven by the large civil contract signed during the period, as the company noted that the German market remains challenging. In contrast, Clavister reported good progress for firewalls in the Nordic region. It also highlighted growing interest in European cybersecurity, more intensive customer dialogues and a positive outlook for 2027.

Gross margin stands out. The 88.6% gross margin, compared with our estimate of 79.7%, was a clear positive. Management noted higher input costs due to increased component prices but is working to mitigate these effects through price increases and other measures to protect margins. Nevertheless, management’s continued focus on growth leads us to believe that the 22% EBIT margin reported in the quarter is unlikely to be sustained but that it shows the underlying scalability in the business.

Defence progressing well. Defence revenue grew 211% Y/Y, primarily driven by the TCNS contract. Clavister also achieved important project milestones, which the company expects to trigger a SEK65m payment in Q4. This should strengthen the cash position significantly in the coming quarter.