Swedish small caps

Swedish small caps

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I.A.R. Systems Group: 1 director

A director at I.A.R. Systems Group bought 60,000 shares at 81.500SEK and the significance rating of the trade was 69/100. Is that information sufficient for you to make an investment decision? This report gives details of those trades and adds context and analysis to them such that you can judge whether these trading decisions are ones worth following. Included in the report is a detailed share price chart which plots discretionary trades by all the company's directors over the last two years ...

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IAR Systems “Next year is IAR Systems’ year”…

… is something we have been saying since 2019 and, while the burden of proof is heavy, we remain confident that the investment community should see early signs of 64-bit, RISC-V, and security traction in 2021e. This could spark a shift in perception given the vast market opportunity to reignite a ~15% organic sales CAGR and revisit 30%+ EBIT margins. Our SEK180–250 fair value corresponds to a 2022e P/E of 27x.

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IAR Systems Headwinds into Q4

IAR Systems is not yet out of the woods as we expect pandemic-related uncertainty to continue to dampen new business wins in Q4. We forecast a 2020–2022e EPS CAGR of 30%+ with IAR Systems ready to reap the fruit of its rapid investment pace. We reiterate our SEK180–250 fair value. The stock is trading 20% below its historical valuation on 2021e.

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IAR Systems A stable ship

While there are cyclical components to IAR Systems’ perpetual licence model, design activity and secular drivers have remained resilient through the pandemic. We see two dimensions to the story. The stock is trading 30% below its historical 29x P/E, and we forecast a 2020–2022e EPS CAGR of 30%+ with IAR Systems ready to reap the fruit of its rapid investment pace. We reiterate our SEK180–250 fair value.

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IAR Systems Back to business

IAR Systems’ ability to sign one of its largest-ever deal during a global pandemic demonstrates: 1) solid execution; 2) the relative resilience of its business model; and 3) that its offerings are mission-critical for clients, with large OEMs increasingly standardising using its development tools. Underlying, we have raised our 2021–2022e EPS by 12%, although this is more than offset by a 16% FX headwind. We have also raised our fair value to SEK180–250 (SEK150–230).

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IAR Systems To show durability during downturn

IAR’s Q1 results clearly missed our forecasts, but we believe that the historical durability of design activity through downturns in order for its customers to remain competitive should provide relative resilience in 2020. We have reduced our 2020–2022e EBIT by 7%, and reiterate our SEK150–230 fair value, as IAR’s growth prospects from RISC-V and security remain attractive in our view.

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IAR Systems Insiders showing the way

While Covid-19 does not stop the increased security risks the IoT can present, nor developers’ need for the flexible design processes offered by RISC-V, we have cut our 2020–2022e EBIT forecasts by 19%. Still, as its legacy tools are system-critical for its OEM customers, we estimate its fair value at SEK150–230 (230–275) and note that the stock is trading at a P/E 2021e of 16x, a 40% discount to its historical average.