Otovo (No_rec, TP: NOK) - Clouds still on the horizon

Needing to increase its activity meaningfully to cut its cash burn, soft order intake in Q1 leaves us concerned. With market prospects remaining weak, we consider one of the three following outcomes as likely: 1) a full take-over by the majority owners to restructure the company; 2) a sale to an industrial company; or 3) the stock remaining listed and existing owners carrying out a rights issue, resetting the equity value. With high uncertainty and a broad set of potential outcomes for the curre...

Otovo (Hold, TP: NOK2.60) - Needs to rebuild investor trust

With order intake on the soft side in Q4, we have lowered our installation forecasts for 2024–2025 by 27–11%, but expect this to be largely offset by guided opex reductions being higher than expected. With significant concerns about Otovo’s business model in the capital markets, we believe the company needs to rebuild investor confidence and start to achieve its targets by scaling up its platform and improving profitability to see any re-rating of the stock. We reiterate our HOLD and NOK2.6 targ...

Otovo (Hold, TP: NOK2.60) - Seeing is believing

With significant concerns about Otovo’s business model in the capital markets, we believe it is crucial for the company to prove its operating model by generating profit. We believe this could take time as the challenging market environment and fierce competition in residential solar constrains growth, and we do not forecast sufficient installation volumes for positive EBITDA generation until 2026e. We reinstate a recommendation with a HOLD and NOK2.6 target price, and believe it is key for mana...

Otovo (No_rec, TP: NOK) - Recommendation and target price withdrawn

Given DNB Markets’ role as joint financial adviser related to the potential equity raise in Otovo ASA, we have withdrawn our recommendation, target price and estimates.

Otovo (Buy, TP: NOK8.00) - Market headwinds intensify

We have cut our residential solar growth estimates significantly given still-soft market sentiment, which is set to hit Otovo hard due to its need for scale to improve profitability. We forecast negative EBITDA over the two next years and a NOK1.5bn liquidity need by 2030e. We reiterate our BUY, but have cut our target price to NOK8 (16), and believe the company will need to show tangible signs of improving profitability and address its liquidity needs before any re-rating of the stock.

Otovo (Buy, TP: NOK16.00) - Proving monetisation strategy

We consider Otovo’s first subscription portfolio sale proof of its portfolio monetisation strategy and the WACC of 6.4% strong in today’s high interest rate environment. Despite the sale improving liquidity, we still see a funding need in Q2 2024e unless further portfolios are sold, but this is likely to be easier to bridge with a proven subscription portfolio monetisation strategy. We have reduced the discount applied to our SOTP to 35% (50%) as we now see less risk associated with the company’...

Northern Lights

Otovo (Buy, TP: NOK16.00) - Profitability starting to improve

Otovo reported a decent Q2 operationally, with its EBITDA losses starting to narrow slightly. Given a strong gross-margin trend and its cost-control plans, we have raised our 2023–2024e EBITDA by 7-9%, despite continued soft sales prompting us to reduce our installation forecasts for H2 and 2024. We still believe tangible signs of improving profitability and monetisation of the subscription portfolio are needed for a re-rating of the stock and thus maintain the 50% discount to our NOK32/share SO...

Otovo (Buy, TP: NOK16.00) - Patience needed

While we expect Otovo to continue to deliver on the factors within its control, the residential solar market has become somewhat more challenging, with lower electricity prices, regulatory headwinds in key markets and higher interest rates. As a result, we believe tangible signs of improving profitability and monetisation of the leasing portfolio are needed for a re-rating of the stock. Hence, we have raised the discount to our NOK32/share SOTP to 50% (35%), and lowered our target price to NOK16...

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Northern Lights

Otovo (Buy, TP: NOK21.00) - A step in the right direction

With stronger than expected activity and margins in Q1, we believe Otovo is moving in the right direction, and forecast narrower EBITDA losses in 2023–2024 after having raised our EBITDA estimates by 17–6%. We reiterate our BUY and NOK21 target price. We still apply a 35% discount to our SOTP of NOK32/share and believe the stock should continue to trade as such until the situation in Italy normalises and we see a firmer pathway towards portfolio monetisation.

Otovo (Buy, TP: NOK21.00) - Italian headwinds

We have lowered our 2023e installations by 7% and EBITDA by 14% on the proposed changes to the Italian tax credit scheme for residential solar, but forecast a limited negative effect from the country beyond this. We reinstate our BUY and NOK21 target price, representing a 35% discount to our SOTP of NOK32/share and believe the stock should trade at a discount to our SOTP until the situation in Italy normalises and we see a firmer pathway towards a portfolio monetisation.

Otovo (No_rec, TP: NOK) - Approaching fully funded

Having raised NOK250m in equity and refinanced its subscription debt facility at a higher LTV, Otovo’s liquidity runway has been extended to Q2 2024, on our estimates. We consider this the first step in a process that, along with a planned monetisation of the subscription portfolio, should leave the company fully funded. Given DNB Markets’ role as Sole Bookrunner in the recent private placement and Manager in the contemplated subsequent offering, we have withdrawn our target price and recommenda...

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Otovo (Buy, TP: NOK41.00) - Lease monetisation approaching

Solid fundamentals for residential solar and strong momentum in the subscription business lead us to believe that Otovo might take the first steps to monetise its subscription portfolio this year. We believe this could be a share-price catalyst as it would crystalise the value of Otovo’s leasing portfolio and enhance liquidity. To be sufficiently funded until that time, the company is dependent upon a favourable outcome of the ongoing refinancing. We reiterate our BUY but have lowered our target...

Northern Lights

Otovo (Buy, TP: NOK43.00) - Awaiting lease portfolio refinancing

We welcome the reported step-up in subscriptions sold and have raised our leasing share forecast following the Q3 report. However, an uptick in subscriptions makes us wonder whether additional equity might be needed to finance the substantial growth. We believe that a favourable outcome of the upcoming refinancing would leave the leasing business fully funded and unlock upside potential, but would expect additional equity to be required over the next years if the LTV covenant is not relaxed from...

Otovo (Buy, TP: NOK43.00) - A safe house in a rough neighbourhood

With the threat of recession and rising interest rates still hurting valuations of growth stocks, we consider Otovo well placed given high inflation adjustments to leases reducing the negative effect from rate hikes, and spiralling energy prices continuing to drive demand for residential solar. We await news on the refinancing of the company’s lease portfolio, and consider a potential relaxation of its LTV covenant key for increasing the value generated by the subscription portfolio, and thus a ...

Otovo - Initiation of coverage - Here comes the sun

With a reputable and highly scalable marketplace for residential solar, we believe Otovo will be fuelled by an attractive combination of: 1) supportive fundamentals arising from growth in the residential solar market; and 2) an increasing share of leases improving profitability, subject to the successful monetisation of its leasing portfolio. We initiate coverage with a BUY and NOK43 target price.