Cloud Transition And Post-Quantum Cryptography Will Open Global Markets

Key Takeaways

• Expansion in public sector and international markets, along with post-quantum products, drives revenue growth and strategic positioning.
  
• Shift to secure cloud services aims to transform business model, boosting recurring revenue and long-term profitability.
  
• Uncertainties in Germany's defense budget and slow adoption of new technologies may delay revenue growth and impact future cash flows and earnings.

Catalysts

Operates as a cybersecurity company in Germany and internationally.

• Secunet is experiencing significant growth in the public sector, both nationally and internationally, which is contributing to increased revenues. This expansion is expected to continue, particularly in international markets such as Europe and the Middle East, driving revenue growth further.
  
• The company is developing new generation products that are post-quantum cryptography ready, especially for the defense sector, suggesting a strategic positioning for long-term growth as requirements evolve, which could enhance future revenue streams and margins.
  
• There is a strategic shift towards cloudification, with secure cloud offerings being developed. This transition is expected to transform the business model from appliance sales to a recurring revenue model, potentially increasing recurring revenue and improving profitability in the long term.
  
• The internationalization strategy is expanding secunet's market presence, with new opportunities being tapped in areas previously not addressed. This is expected to support revenue growth and market diversification, reducing dependency on any single market.
  
• Strategic investments in key growth areas, particularly in cloud infrastructure and capability development, suggest potential for revenue growth and competitiveness. This focus on technological advancements could enhance operating margins and lead to an improved EBITDA performance.

secunet Security Networks Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming secunet Security Networks's revenue will grow by 8.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.9% today to 8.1% in 3 years time.
• Analysts expect earnings to reach €42.2 million (and earnings per share of €6.51) by about May 2028, up from €28.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €46.4 million in earnings, and the most bearish expecting €37.8 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 34.5x on those 2028 earnings, down from 48.3x today. This future PE is greater than the current PE for the GB IT industry at 25.7x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.22%, as per the Simply Wall St company report.

secunet Security Networks Future Earnings Per Share Growth

Risks

• Budget uncertainty in Germany, particularly related to defense spending, could impact future revenues if government clients do not finalize budgets promptly.
  
• The transition from appliances to a cloud-based recurring revenue model may take longer than expected, leading to slower growth in revenue during this period of change.
  
• Delays in the adoption and infrastructure requirements for new technologies, like cloud and post-quantum cryptography, could postpone earning potential and impact future cash flows.
  
• Growth in the e-health sector is uncertain during the transition to new infrastructure, which could affect revenue projections if new products do not gain traction promptly.
  
• International expansion is still in early stages in markets like Spain and Eastern Europe, indicating that current revenues are not guaranteed to scale quickly, possibly affecting overall earnings growth.

Valuation

• The analysts have a consensus price target of €202.25 for secunet Security Networks 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 €221.0, and the most bearish reporting a price target of just €180.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €518.6 million, earnings will come to €42.2 million, and it would be trading on a PE ratio of 34.5x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of €208.5, the analyst price target of €202.25 is 3.1% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.