Saudi Vision 2030 Will Unlock New Digital Markets

Key Takeaways

• Strategic expansion into Saudi Arabia and Gulf markets underpins growth, leveraging regional digitization initiatives and existing relationships.
  
• NTGapps platform and efficiency improvements expected to enhance margins and drive profitability.
  
• Heavy reliance on Saudi Arabia combined with tax burden, low NTGapps contribution, and volatile currency impacts could threaten NTG Clarity Networks' revenue and profitability.

Catalysts

Provides telecommunications engineering, information technology, networking, and related software solutions worldwide.

• NTG Clarity Networks is benefiting from Saudi Arabia's digital transformation initiatives under the Vision 2030 strategy, which is expected to drive future revenue growth due to significant investments and customer demand for digital services.
  
• The introduction and adoption of the NTGapps digital transformation platform, which currently contributes 6% of revenue but is expected to grow, could lead to future revenue growth and improved gross margins due to its 50% gross margin potential, higher than typical services margins.
  
• Multi-year contracts and a strong backlog of over $105 million provide revenue visibility and support for continued revenue growth, as these contracts indicate sustained demand and customer retention.
  
• NTG's efforts to reduce operating expenses relative to revenue through improved efficiencies and scalability are expected to enhance net margins, thus contributing to overall profitability.
  
• The expansion into adjacent Gulf markets and increased penetration in Saudi Arabia could drive additional revenue growth by capturing opportunities from regional digitization strategies, further supported by NTG's existing relationships and proven business model.

NTG Clarity Networks Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming NTG Clarity Networks's revenue will grow by 28.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 17.5% today to 10.4% in 3 years time.
• Analysts expect earnings to reach CA$12.3 million (and earnings per share of CA$0.24) by about April 2028, up from CA$9.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.4x on those 2028 earnings, up from 7.1x today. This future PE is lower than the current PE for the CA Software industry at 29.7x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.41%, as per the Simply Wall St company report.

NTG Clarity Networks Future Earnings Per Share Growth

Risks

• NTG Clarity Networks is highly reliant on the Saudi Arabian market, with 95% of revenue coming from there. Any changes in Saudi Arabia's economic or political environment could significantly impact the company’s revenue and growth prospects.
  
• The company has used up all of its accumulated tax losses, meaning it will now be required to pay corporate taxes in Canada, which could impact net income margins.
  
• While NTGapps has shown growth potential, it still only accounts for a small portion of revenue. The success of this product is not guaranteed and its adoption will be critical for achieving higher gross margins.
  
• NTG Clarity Networks' growth is heavily dependent on ongoing digital transformation investments by the Saudi government. If investments in Vision 2030 slow down or fail to meet expectations, the company’s future revenue growth could be adversely affected.
  
• The foreign exchange environment poses a risk, as fluctuation in currency rates between the Saudi riyal, U.S. dollar, Canadian dollar, and Egyptian pound could impact earnings and operating costs, altering profitability.

Valuation

• The analysts have a consensus price target of CA$3.0 for NTG Clarity Networks based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$118.2 million, earnings will come to CA$12.3 million, and it would be trading on a PE ratio of 15.4x, assuming you use a discount rate of 7.4%.
  
• Given the current share price of CA$1.66, the analyst price target of CA$3.0 is 44.7% 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.