Green Transition And Digitalization Will Support A Gradual Recovery In Earnings

Catalysts

About Sitowise Group Oyj

Sitowise Group Oyj provides technical consulting, digital solutions and design services for infrastructure, buildings and critical public sector systems in the Nordic region.

What are the underlying business or industry changes driving this perspective?

• Accelerating investments in green transition, environmental services and defense infrastructure, including rail and road projects, are expanding the addressable market for Infra and supporting sustained revenue growth and more stable utilization rates.
• Growing demand for digitalization of critical transport and public infrastructure, reflected in multi-year contracts for traffic information and lighting control systems, is expected to drive higher recurring SaaS and product revenues and support structurally stronger earnings.
• The strategic shift in Buildings toward resilient end markets such as industry, defense, energy and data centers reduces exposure to cyclical residential construction and is gradually improving pricing power, net margins and revenue visibility.
• Improving utilization, particularly in structural engineering and Swedish operations, combined with prior cost adjustments, is likely to translate rising order intake into operating leverage and support margin recovery and earnings growth as volumes normalize.
• Continued focus on productized digital offerings and expansion into new geographies in Digital Solutions increases scalability of the business model, which should enhance gross margins and earnings as the share of high-margin product and SaaS revenue grows.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Sitowise Group Oyj's revenue will grow by 4.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from -2.2% today to 4.1% in 3 years time.
• Analysts expect earnings to reach €8.6 million (and earnings per share of €0.24) by about December 2028, up from €-4.2 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €14.6 million in earnings, and the most bearish expecting €6.9 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 13.8x on those 2028 earnings, up from -19.2x today. This future PE is greater than the current PE for the FI Construction industry at 13.1x.
• 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 10.61%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Sweden remains structurally weak, with net sales down almost 20% and the business still loss making. If the anticipated turnaround in 2026 is delayed or fails to materialize, the drag on group profitability could intensify and weigh on earnings and valuation multiples over several years, pressuring the share price to re rate.
• Persistent overcapacity and fierce price competition in Buildings, alongside a residential construction recovery that management expects only to materialize on a larger scale around 2027, could cap pricing power and keep net margins structurally below target. This may limit the company’s ability to grow earnings despite a brighter medium and long term demand picture.
• Mixed and partially challenging public sector markets, including postponed investments and cautious private sector demand in key verticals such as the forest industry, may constrain the flow of new Infra and Digital Solutions projects. This could put at risk the current growth trajectory in net sales and the improving utilization rates that underpin margin expansion.
• The strategy to double the Digital Solutions business by 2030 and have product and SaaS revenue account for half of that mix assumes sustained double digit growth in high margin software. If competitive dynamics, slower digitalization or budget constraints in critical infrastructure reduce that growth, the expected uplift to group earnings and valuation could fall short.
• Weaker profitability has already pressured cash flow and increased leverage. If prolonged weak market conditions in Buildings and Sweden, combined with seasonal cash flow troughs, persist longer than expected, rising financial risk and potential constraints on investment could negatively impact both earnings growth and investor confidence in the equity story.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of €2.43 for Sitowise Group Oyj 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 €2.8, and the most bearish reporting a price target of just €2.2.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be €211.8 million, earnings will come to €8.6 million, and it would be trading on a PE ratio of 13.8x, assuming you use a discount rate of 10.6%.
  
• Given the current share price of €2.23, the analyst price target of €2.43 is 8.4% higher. 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.