Cloud And IP Execution Risks May Challenge Integration Ambitions Yet Long-Term Upside Remains

Catalysts

About Atturra

Atturra is an Australia based advisory and IT solutions provider focused on industry specific, cloud, integration and IP led offerings.

What are the underlying business or industry changes driving this perspective?

• Although demand for AI enabled, data intensive integration projects is rising and Atturra has over 270 specialists positioned to benefit, execution risk in converting pilots to large scale programs across conservative government and enterprise clients could cap revenue growth and delay operating leverage on group earnings.
• While the shift to hybrid and private cloud with heightened sovereignty and security requirements structurally favors Atturra’s managed cloud platform and Microsoft designation, aggressive capacity and GPU investment could outpace client adoption and compress gross margins if utilization ramps more slowly than planned.
• Although Scholarian and other proprietary software assets target a clear need for modern student information and SaaS solutions, slower than expected module rollout, school onboarding or budget constraints in the education sector could limit the forecast 100 percent plus IP revenue growth and defer the mix shift to higher margin recurring earnings.
• While acquisitions in SAP, ServiceNow, Boomi and managed services expand Atturra’s addressable market and cross sell potential, prolonged integration, cultural misalignment or delays in systems consolidation may erode the anticipated scale benefits and keep EBITDA margins anchored near current levels.
• Although long term domestic manufacturing and sovereign capability initiatives should increase demand for specialized ERP and industry solutions, extended policy lead times, project deferrals or further weakness in federal and defense spending could mute organic revenue growth and keep EPS recovery behind management’s targets.

Assumptions

This narrative explores a more pessimistic perspective on Atturra compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Atturra's revenue will grow by 13.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 3.0% today to 4.6% in 3 years time.
• The bearish analysts expect earnings to reach A$20.2 million (and earnings per share of A$0.05) by about December 2028, up from A$9.1 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as A$35.0 million.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 18.6x on those 2028 earnings, down from 26.7x today. This future PE is lower than the current PE for the AU IT industry at 40.9x.
• The bearish analysts expect the number of shares outstanding to decline by 1.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.84%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Prolonged weakness in federal government and defense IT spending, which already dragged organic growth down to 7% in FY 2025 and is expected to remain a headwind of up to $10 million in FY 2026 and $9 million in FY 2027, could structurally cap top line expansion and keep revenue growth below the targeted 20% level, pressuring earnings.
• Reliance on acquisitions to reach scale, with $54.6 million of FY 2025 growth coming from acquired revenue and ongoing integration costs of $1.4 million plus further planned deals, increases the risk that synergies are delayed or margins diluted, limiting improvements in underlying EBITDA and net profit.
• The strategy to ramp IP and cloud offerings such as Scholarian and Atturra managed cloud, including up to $2.5 million of capitalized development and further operating spend, assumes sustained high demand and pricing power. However, slower school adoption, cloud competition or underutilized GPU and private cloud capacity could compress gross margins and reduce recurring earnings.
• Management is guiding to higher EPS through operating leverage and better capital management. Yet the recent capital raising that cut reported earnings per share by 28% to 0.026 dollars shows that future equity issuance or missteps in capital allocation could again dilute shareholders and limit net earnings per share growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Atturra is A$0.8, which represents up to two standard deviations below the consensus price target of A$1.04. This valuation is based on what can be assumed as the expectations of Atturra's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$1.15, and the most bearish reporting a price target of just A$0.8.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2028, revenues will be A$440.3 million, earnings will come to A$20.2 million, and it would be trading on a PE ratio of 18.6x, assuming you use a discount rate of 8.8%.
  
• Given the current share price of A$0.66, the analyst price target of A$0.8 is 18.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.