Crayon Integration And New Partnerships Expected To Drive Future Growth

Key Takeaways

• Strategic partnerships and market strategy transformations are set to fuel revenue growth across various sectors and regions.
  
• Cost synergies and efficiency improvements aim to significantly enhance earnings and profitability in the near future.
  
• Organizational changes and sales execution issues are causing instability and could impact revenue growth, with increased operational costs heightening pressure on net margins.

Catalysts

Provides software and cloud solutions in Switzerland, Europe, the Middle East, Africa, the United States, Canada, Latin America, and the Asia Pacific.

• The combination with Crayon is expected to drive significant value creation, with CHF 80 million to CHF 100 million in anticipated cost synergies, which should positively impact the net margins and earnings.
  
• The company aims to double its reported EBITDA in 2025, supported by cost reduction initiatives and improved sales execution, which will enhance earnings.
  
• Ongoing transformation of the go-to-market strategy is expected to drive higher growth in impacted markets, boosting revenue.
  
• SoftwareONE is actively scaling its AWS business across all regions, aiming to become the fastest-growing partner globally, which should lead to increased revenue.
  
• The new strategic partnership with ServiceNow and expanded OCRE Framework agreement should facilitate growth in public sector and IT asset management services, further contributing to revenue growth.

SoftwareONE Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SoftwareONE Holding's revenue will grow by 5.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.2% today to 9.1% in 3 years time.
• Analysts expect earnings to reach CHF 107.8 million (and earnings per share of CHF 0.75) by about February 2028, up from CHF -1.6 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CHF134.0 million in earnings, and the most bearish expecting CHF86.6 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.1x on those 2028 earnings, up from -618.4x today. This future PE is lower than the current PE for the CH Electronic industry at 30.0x.
• Analysts expect the number of shares outstanding to grow by 4.18% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.17%, as per the Simply Wall St company report.

SoftwareONE Holding Future Earnings Per Share Growth

Risks

• SoftwareONE experienced a challenging 2024 with significant organizational changes needed to address sales execution issues and restore customer centricity, reflecting potential instability and distraction which could impact revenue growth in the short term.
  
• The company reported a decline in the Software & Cloud Marketplace revenue due to GTM sales execution issues and external macroeconomic conditions, which could further impact net margins if not resolved.
  
• Q4 revenue showed a decline of 5.1%, primarily due to muted customer spending in key markets such as DACH and ongoing underperformance in markets affected by the GTM transformation, posing risks to future earnings.
  
• Although cost reduction programs are in place, SG&A expenses increased substantially by 12.4% for the full year, indicating higher operational costs that could continue to pressure net margins.
  
• The overall market sentiment and the transition towards a new business model with a focus on the integration of Crayon might face execution risks, and if synergy potential is not realized, it could adversely affect future profitability and growth prospects.

Valuation

• The analysts have a consensus price target of CHF9.612 for SoftwareONE Holding based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CHF13.5, and the most bearish reporting a price target of just CHF7.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CHF1.2 billion, earnings will come to CHF107.8 million, and it would be trading on a PE ratio of 18.1x, assuming you use a discount rate of 5.2%.
  
• Given the current share price of CHF6.42, the analyst price target of CHF9.61 is 33.2% 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.