First Berlin – Intershop Communications AG Research Update (11/04/2018)

First Berlin Equity Research has published a research update on Intershop Communications AG (ISIN: DE000A0EPUH1). Analyst Karsten von Blumenthal upgraded the stock to REDUCE and increased the price target from EUR 1.51 to EUR 1.58.

Intershop Communications AG reported final 2017 figures which were slightly below our estimates, but in line with company guidance. Sales grew 5% y/y to €35.8m. The successful operating turnaround resulted in positive EBIT of €0.4m (2016: €-2.4m). The net result was €-0.7m. After three years of declining revenues the company is now growing again, and its cost structure is much more flexible. We note that Intershop generated positive EBIT in each quarter of 2017. We believe that the restructuring program Lighthouse 2020 has so far been successful. The expansion of the cloud business and the focus on medium-sized customers were the main growth drivers. We see Intershop's Cloud First strategy, which is now based on the new standardised cloud offering Intershop Commerce as a Service (CaaS), as the main future growth driver. Guidance for 2018 is however cautious. Intershop expects slight revenue and gross margin growth and a slightly positive EBIT. Given the strong competition, we lower our estimates for 2018E & 2019E. An updated DCF model yields a slightly higher price target of €1.58 (previously: €1.51). Following the recent share price decline we upgrade the stock from Sell to Reduce.