Digital Transformation And Cloud Trends Will Expand Global Reach

Key Takeaways

• Accelerated cost synergies from the Crayon merger, AI-driven solutions, and CSP adoption are boosting margins, recurring revenues, and overall profitability.
  
• Geographic expansion and enhanced managed services position SoftwareOne for sustained growth, increased enterprise demand, and long-term earnings outperformance.
  
• Heavy reliance on Microsoft, slow business model transformation, and rising automation gaps threaten margins, revenue growth, and profitability amid industry and vendor-driven changes.

Catalysts

Provides software and cloud solutions in Switzerland, Germany, Austria, rest of Europe, Mauritius, South Africa, the United States, Canada, Latin America, the Asia Pacific, Dubai, and Qatar.

• While analyst consensus sees CHF 80 million to CHF 100 million of cost synergies from the Crayon merger by the end of 2026, the rapid pace of early integration, streamlined management, and shared best practices could enable the combined company to surpass the top end of synergy targets ahead of schedule, lifting both net margins and EBITDA even before 2026.
  
• Analyst consensus expects Microsoft's ongoing transition from Enterprise Agreements (EA) to CSP models to drive higher-margin growth, but they may be underestimating the acceleration and scale of impact-the shift to CSP and associated value-added services could result in a structurally higher margin profile by 2026, as recurring, multi-cloud consulting delivers both cross-sell and upsell revenue well above prior run rates.
  
• SoftwareOne's swift adoption and packaging of AI-powered solutions, such as the scalable AI chatbot for enterprise productivity, positions the company to rapidly capitalize on surging demand for enterprise AI and automation, accelerating services revenue growth and creating a new high-margin offering.
  
• The company's geographic expansion strategy-particularly its double-digit growth trajectory in APAC and renewed momentum in North America-unlocks significant new addressable markets, while smoothing regional volatility and supporting structurally faster top-line growth as global digital transformation continues to accelerate.
  
• As software environments become ever more complex and regulatory demands intensify, SoftwareOne's deepening managed services and compliance expertise makes it a go-to advisor for large enterprises, underpinning future multi-year contract wins and increasing the share of recurring, high-margin revenues, further supporting long-term earnings outperformance.

SoftwareOne Holding Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on SoftwareOne Holding compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming SoftwareOne Holding's revenue will grow by 29.7% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -2.0% today to 14.2% in 3 years time.
• The bullish analysts expect earnings to reach CHF 301.0 million (and earnings per share of CHF 1.58) by about September 2028, up from CHF -19.6 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 11.6x on those 2028 earnings, up from -81.3x today. This future PE is lower than the current PE for the CH Electronic industry at 32.5x.
• Analysts expect the number of shares outstanding to grow by 0.13% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.12%, as per the Simply Wall St company report.

SoftwareOne Holding Future Earnings Per Share Growth

Risks

• The company faces long-term structural risk from growing vendor consolidation and the increasing preference by major software vendors-especially Microsoft-for direct sales, as reflected in revenue declines tied to Microsoft's incentive cuts and the shift to direct transactions for large enterprise customers, which could significantly pressure future revenue growth and gross profits.
  
• The slow transition away from legacy license management and transactional businesses toward higher-value advisory and digital/cloud services is creating margin pressure, as seen in declining transactional revenue and modest services growth, raising the risk of compressed net margins and lagging EBITDA if industry shifts outpace internal transformation.
  
• SoftwareOne and Crayon remain heavily concentrated in their exposure to Microsoft, so any further changes to Microsoft's incentives, pricing, or partner strategy could materially erode top-line revenue and profitability, as evidenced by the significant negative impact from Microsoft's enterprise agreement incentive reductions in the recent results.
  
• Sustained cost reduction efforts and reliance on headcount-related synergies risk lowering internal capacity and agility; if underinvestment in proprietary technology and automation continues, the firm's relative cost base could rise versus larger, more automated competitors, ultimately harming long-term earnings growth and operating leverage.
  
• The migration of customers to SaaS and subscription models is reducing the volume and profitability of large upfront license deals, which limits the commissionable base for resellers like SoftwareOne and may continue to erode gross billings and future revenue streams as the software ecosystem shifts away from traditional resale arrangements.

Valuation

• The assumed bullish price target for SoftwareOne Holding is CHF14.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of SoftwareOne 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 CHF14.0, and the most bearish reporting a price target of just CHF7.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be CHF2.1 billion, earnings will come to CHF301.0 million, and it would be trading on a PE ratio of 11.6x, assuming you use a discount rate of 5.1%.
• Given the current share price of CHF7.45, the bullish analyst price target of CHF14.0 is 46.8% 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.