Embracing AI And Product-Led Offerings Will Strengthen Market Position In The Future

Key Takeaways

• Product-led growth strategy and public sector expansion are poised to drive higher margins and substantial revenue opportunities.
  
• Innovative tech focus, U.S. market expansion, and strategic investments should stimulate revenue growth and enhance EBITDA through operational efficiencies.
  
• Trifork faces uncertainty in achieving revenue and cost-saving goals amid increased competition, market changes due to AI, and challenges in its Labs segment.

Catalysts

Provides information technology and other business services in Switzerland, Denmark, the United Kingdom, the Netherlands, the United States, and internationally.

• The shift towards selling more IP and products, combined with service offerings, is expected to drive higher margins in the future compared to traditional consulting hours. This product-led approach should positively impact net margins and revenue growth as bundling products and services creates a stronger market offering.
  
• Trifork is focusing on increasing its presence in the public sector, which provides growth opportunities. These efforts aim to enhance revenue growth by tapping into a less saturated market compared to the private sector.
  
• The launch of the Corax AI platform and focus on innovative technologies like Gen AI and digital twins are strategic moves to capture new market needs. These initiatives are expected to stimulate revenue growth through new customer acquisition and expanding existing customer engagements.
  
• The expansion and success in the U.S. market, alongside a concentrated focus on strategic swim lanes such as spatial computing and AI, indicate potential for continued revenue growth as more leads convert into contracts.
  
• The cost-saving program, coupled with strategic investments in business development, is projected to improve the Trifork segment's EBITDA growth. This initiative could significantly enhance future earnings by optimizing operational efficiencies.

Trifork Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Trifork Group's revenue will grow by 9.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.0% today to 8.2% in 3 years time.
• Analysts expect earnings to reach €22.4 million (and earnings per share of €1.14) by about March 2028, up from €16.6 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €24.8 million in earnings, and the most bearish expecting €20 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.2x on those 2028 earnings, up from 14.3x today. This future PE is lower than the current PE for the DK IT industry at 27.8x.
• Analysts expect the number of shares outstanding to grow by 0.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.83%, as per the Simply Wall St company report.

Trifork Group Future Earnings Per Share Growth

Risks

• Trifork experienced a disappointing performance in 2024, failing to meet revenue expectations due to underperformance in Q2 and Q3, potentially impacting future revenue growth.
  
• The company has implemented a cost-saving program aimed at achieving €10 million savings annually, but these savings may not fully materialize until the latter half of 2025, which could pressure net margins in the interim.
  
• There is ambiguity regarding the impact of special items or severance payments related to cost-reduction initiatives, which may have unanticipated effects on earnings.
  
• Increased competition and market transformation due to AI may require Trifork to adapt its services and market strategies, potentially affecting revenue stability.
  
• Challenges in the Trifork Labs segment, particularly in achieving sustainable profitability among lab companies, could impact the overall earnings contribution to the Trifork Group.

Valuation

• The analysts have a consensus price target of DKK113.333 for Trifork Group 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 DKK130.0, and the most bearish reporting a price target of just DKK100.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €274.1 million, earnings will come to €22.4 million, and it would be trading on a PE ratio of 16.2x, assuming you use a discount rate of 7.8%.
• Given the current share price of DKK91.0, the analyst price target of DKK113.33 is 19.7% 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.