Cloud Integration Will Empower Healthcare Automation And Address Aging Demand

Key Takeaways

• Unified cloud-native platform and automation are expected to fuel scalable growth, boost high-margin software revenues, and drive notable long-term margin improvements.
  
• Strong healthcare demand, key customer wins, and enhanced financial flexibility position Ascom for accelerated market share gains and capital returns.
  
• Reliance on healthcare, flat growth, competition, and FX volatility create major risks to Ascom's revenue stability, margins, and future profitability.

Catalysts

Provides healthcare ICT and mobile workflow solutions worldwide.

• While analyst consensus recognizes efficiency gains from portfolio simplification and platform integration, it likely underestimates the step-change in scalability and cross-selling opportunities from migrating both new and existing clients to a unified, cloud-native platform-this transition could accelerate revenue growth and significantly expand recurring high-margin software revenue streams.
  
• Analysts broadly expect operational excellence initiatives to lift margins, but the completed restructuring and lean regional setup are poised to drive a more dramatic and lasting improvement in net margins, particularly as automation and centralized operations deliver additional structural cost reductions surpassing initial expectations.
  
• Ascom is strategically positioned to capitalize on the unprecedented rise in demand for healthcare workflow automation and integration driven by aging populations, regulatory requirements, and the complexity of care settings, supporting rapid multi-year growth in its core healthcare segment and driving both topline and earnings expansion.
  
• Recent customer wins with flagship hospital references, new U.S. leadership from GE Healthcare, and robust partnerships provide a catalyst for market share gains in Tier 1 markets, unlocking significant incremental revenue opportunities beyond current market share assumptions.
  
• With share buybacks underway and a markedly stronger balance sheet from improved working capital and reduced capex, Ascom is in a position to accelerate capital returns and strategic investments, providing a powerful tailwind to future EPS growth.

Ascom Holding Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Ascom Holding compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Ascom Holding's revenue will grow by 5.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 1.1% today to 5.3% in 3 years time.
• The bullish analysts expect earnings to reach CHF 17.7 million (and earnings per share of CHF 0.49) by about August 2028, up from CHF 3.0 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 14.1x on those 2028 earnings, down from 51.2x today. This future PE is lower than the current PE for the GB Healthcare Services industry at 51.2x.
• Analysts expect the number of shares outstanding to grow by 2.09% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 4.72%, as per the Simply Wall St company report.

Ascom Holding Future Earnings Per Share Growth

Risks

• Ongoing declines in order intake and flat revenue growth, particularly in the U.S. and Canada due to market volatility and delayed investments, indicate difficulty in maintaining top-line growth, which directly threatens future revenue expansion.
  
• High dependency on the healthcare sector, especially hospital and acute care, exposes Ascom to the risk of public budget tightening and government spending cuts, which could lead to revenue instability and unpredictable earnings.
  
• Intensifying competition from larger, more diversified technology players and the increasing shift toward open-architecture, interoperable healthcare IT solutions may erode Ascom's market share and put downward pressure on margins and earnings.
  
• Persistent challenges in converting sales pipeline into sustainable, recurring software and services revenue signal that improvement in gross margins and earnings growth may remain limited over the long term.
  
• Exposure to negative currency movements and increasing financial complexity from global operations, as reflected by recurring FX losses, continues to drag on net profit and could undermine net margins despite efforts to cut costs.

Valuation

• The assumed bullish price target for Ascom Holding is CHF5.7, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Ascom Holding'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 CHF5.7, and the most bearish reporting a price target of just CHF3.75.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be CHF331.0 million, earnings will come to CHF17.7 million, and it would be trading on a PE ratio of 14.1x, assuming you use a discount rate of 4.7%.
  
• Given the current share price of CHF4.28, the bullish analyst price target of CHF5.7 is 24.9% 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.