Digital Transformation And Compliance Trends Will Fuel SaaS Expansion

Key Takeaways

• Near-full migration to the cloud and deep public sector ties drive expanding recurring revenue, higher margins, and durable growth beyond market expectations.
  
• Strong AI integration and disciplined acquisitions accelerate cross-market expansion and entrench Objective's position as a crucial provider in compliance-driven digital transformation.
  
• Heavy dependence on government contracts, limited global reach, rising competition, regulatory pressures, and tech shifts threaten revenue growth, margins, and long-term competitiveness.

Catalysts

Supplies information technology software and services in Australia and internationally.

• While analyst consensus highlights Objective's SaaS transition and recurring revenue, it likely underestimates the magnitude of margin improvement and revenue compounding as nearly all on-premise customers convert to the Nexus platform-management has disclosed actual ARR uplift multiples above 2x for these migrations, suggesting future revenue and net margin acceleration beyond market estimates.
  
• Although analysts see international expansion as a growth lever, the embedded demand from global regulatory and compliance modernization-plus management's ability to rapidly deploy and cross-sell in newly digitizing geographies-points to even higher ARR growth rates and expanding profit pools, as the company's proven models in Australia/New Zealand are scaled across the UK and North America.
  
• Objective's entrenched relationships across public sector and regulated industries, including multi-decade ties and adoption as national standards (e.g., Scottish Government, New Zealand councils), create a deeply embedded customer base and formidable moat, drastically reducing churn and supporting long-term revenue durability.
  
• The accelerating integration of AI and automation within Objective's solutions-tailored specifically to the data sovereignty and privacy needs of government and regulated enterprises-positions the company as the essential provider for compliance-driven digital transformation, enabling sustained price premium, increased wallet share per customer, and consistent expansion of recurring revenue.
  
• Industry consolidation and Objective's disciplined, accretive M&A strategy in regulatory and planning software (e.g., Isovist acquisition, ongoing pipeline) provide multiple optionalities for outsized earnings growth, as strategic tuck-ins can be integrated to deliver both rapid ARR uplift and operating leverage.

Objective Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Objective compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Objective's revenue will grow by 13.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 28.7% today to 32.4% in 3 years time.
• The bullish analysts expect earnings to reach A$57.9 million (and earnings per share of A$0.61) by about September 2028, up from A$35.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 51.2x on those 2028 earnings, down from 55.3x today. This future PE is greater than the current PE for the AU Software industry at 33.6x.
• Analysts expect the number of shares outstanding to grow by 0.52% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.96%, as per the Simply Wall St company report.

Objective Future Earnings Per Share Growth

Risks

• Heavy reliance on government contracts, including major ongoing projects with entities like the Scottish Government and New Zealand government agencies, makes Objective vulnerable to future changes in government priorities, funding cuts, or policy shifts, which could create unpredictable or declining revenues over time.
  
• Intense competition from larger platform providers such as Microsoft and emerging SaaS startups could erode Objective's advantages in specialist solutions, leading to increased pricing pressure and lower net margins, particularly as customers consolidate their vendor base.
  
• Limited global market penetration beyond core regions like Australia, New Zealand, and the UK restricts Objective's ability to scale, and despite incremental efforts to expand internationally, this slow expansion could dampen long-term revenue growth and operating leverage.
  
• Rapidly evolving data privacy regulations and stricter compliance requirements globally, such as GDPR, present a risk of rising compliance costs and higher operational complexity for Objective's clients and itself, which could compress net margins and increase ongoing R&D and legal expenditures.
  
• Accelerating AI-driven automation and demand for integrated, all-in-one productivity platforms may outpace Objective's innovation pipeline or render specialist offerings less attractive, potentially resulting in slower customer acquisition, rising customer churn, and downward pressure on future revenue and earnings.

Valuation

• The assumed bullish price target for Objective is A$24.29, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Objective's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$24.29, and the most bearish reporting a price target of just A$7.3.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be A$178.8 million, earnings will come to A$57.9 million, and it would be trading on a PE ratio of 51.2x, assuming you use a discount rate of 8.0%.
• Given the current share price of A$20.5, the bullish analyst price target of A$24.29 is 15.6% 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.