Proact: A bump in the road - ABG

Lumpy system sales and cloud order intake miss in Q2
Given a challenging market in 2020 due to COVID-19, Proact performed reasonably well. However, in 2021, we have started to see some weakness and sales decline mainly as a result of longer lead times and sales cycles in the Hardware market, as well as some component shortages. Even though we expected a -9% organic sales decline in Q2, the report missed our estimate with an organic sales decline of -14% and caused a smaller adj. EBITA miss of -2%. The sales miss was both related to System sales falling -21% organically y-o-y, but also Cloud revenues declined -4% organically. Following other company comments in the market, we see positive growth for IT infrastructure, Hardware and Services in 2021, so we are surprised by Proact’s weak performance. In fact, looking at 2018-2021e, we see an average annual organic decline of -1% for Proact, which we conclude must have underperformed IT investments in data storage (Hardware and Cloud space) and related services. With recent acquisitions and a satisfied customer group, we estimate that Proact should be able to return to organic growth and improve its mix between Hardware and Services to increase margins.