Integration And New Systems In 2024 Will Streamline Operations And Lower Costs

Key Takeaways

• Strategic initiatives, such as ERP integration and restructuring, are set to enhance operational efficiency, profitability, and market competitiveness.
  
• Expansion in key sectors and strong customer satisfaction indicate steady growth, with organic growth targets outpacing the market.
  
• Revenue stability is challenged by slow data migration recovery, price pressures, and macroeconomic uncertainties, affecting margins and future earnings potential.

Catalysts

Provides information technology solutions for life sciences, public, and private sectors in Denmark, Europe, the United States, and Asia.

• NNIT’s integration of acquisitions and completion of new ERP and HR systems in 2024 are expected to streamline operations and lower costs, positively impacting net margins.
  
• The focus on improving engagement with existing customers and their high customer satisfaction scores (4.5/5) suggest potential for increased revenue as customer loyalty and referrals enhance growth opportunities.
  
• Strategic realignments and leadership changes in Region Europe, along with restructuring to improve capacity utilization, are expected to enhance profitability and boost earnings.
  
• The continued expansion in the Danish public sector and a strong pipeline across key regions provide confidence in achieving organic growth targets of 7-10% in 2025, outpacing the market and positively affecting revenue.
  
• Finalized integration efforts and reduced special items costs, particularly from earn-out payments and IT platform investments, position NNIT to improve net margins and earnings stability from 2025 onward.

NNIT Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming NNIT's revenue will grow by 10.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.1% today to 7.7% in 3 years time.
• Analysts expect earnings to reach DKK 189.0 million (and earnings per share of DKK 7.55) by about May 2028, up from DKK 1.0 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 10.9x on those 2028 earnings, down from 1804.8x today. This future PE is lower than the current PE for the GB Healthcare Services industry at 1757.5x.
• Analysts expect the number of shares outstanding to decline 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 6.54%, as per the Simply Wall St company report.

NNIT Future Earnings Per Share Growth

Risks

• The slower-than-anticipated recovery in the data migration business and cautious customer behavior are impacting revenue stability, particularly in Europe and the U.S. markets.
  
• There is significant price pressure in China due to a challenging macroeconomic environment and local competition, potentially affecting NNIT’s revenue and margins in Asia.
  
• Utilization issues, particularly in Europe, led to a lag in profitability, indicating challenges in efficiency and resource management that could affect future earnings.
  
• Special items and restructuring costs were higher than anticipated, highlighting unexpected expenses that might continue to impact net margins if market conditions deteriorate.
  
• The macroeconomic and geopolitical uncertainties could lead to volatile market demand and impact NNIT's revenue growth projections, thus affecting future earnings potential.

Valuation

• The analysts have a consensus price target of DKK85.0 for NNIT 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 DKK2.5 billion, earnings will come to DKK189.0 million, and it would be trading on a PE ratio of 10.9x, assuming you use a discount rate of 6.5%.
• Given the current share price of DKK72.5, the analyst price target of DKK85.0 is 14.7% 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.