Acquisition And AI Launches Will Unlock Norwegian Public Sectors

Key Takeaways

• LeadDesk's acquisition of Zisson enhances access to new markets and opportunities in healthcare and public sectors, potentially boosting revenue growth.
  
• Strategic focus on profitability, scaling, and AI investments is likely to improve margins and support accelerated growth in European markets like Spain and the Netherlands.
  
• Slower ARR growth and focus on profitable clients limit revenue diversity, while integration challenges and economic headwinds pose risks to revenue consistency and market expansion.

Catalysts

Provides cloud-based contact center solutions for sales outreach and customer service in Finland.

• LeadDesk's acquisition of Zisson is expected to be transformational, providing access to the health care and public sectors in Norway, which should enhance revenue growth opportunities in these new segments.
  
• With continued investment in AI and the launch of new AI-powered products, LeadDesk aims to drive efficiency and enhance customer offerings, potentially boosting revenue and net margins due to higher value services.
  
• The company's focus on the Continental European market, particularly in Spain and the Netherlands, is projected to drive organic growth faster than in the Nordics, impacting overall revenue growth positively.
  
• The integration of Zisson and associated scaling benefits are expected to improve profitability, resulting in higher EBITDA margins through cost synergies and operational efficiencies.
  
• LeadDesk's strategic emphasis on increasing profitability and scale benefits before pursuing further M&A activities could lead to earnings growth, laying a strong foundation for accelerated future expansion in both organic and acquired growth pathways.

LeadDesk Oyj Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming LeadDesk Oyj's revenue will grow by 12.1% annually over the next 3 years.
• Analysts are not forecasting that LeadDesk Oyj will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate LeadDesk Oyj's profit margin will increase from 1.8% to the average FI Software industry of 14.7% in 3 years.
• If LeadDesk Oyj's profit margin were to converge on the industry average, you could expect earnings to reach €6.5 million (and earnings per share of €1.31) by about April 2028, up from €556.0 thousand today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.1x on those 2028 earnings, down from 61.3x today. This future PE is lower than the current PE for the FI Software industry at 38.2x.
• 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 7.49%, as per the Simply Wall St company report.

LeadDesk Oyj Future Earnings Per Share Growth

Risks

• The slower growth of 3.4% in annual recurring revenue (ARR) suggests challenges in expanding the core business, which could impact future revenue growth.
  
• The conscious decision to focus on more profitable clients resulted in slower overall revenue growth, indicating potential limitations in expanding the customer base and affecting revenue diversity.
  
• Integration challenges and potential revenue decline in Zisson due to product ramp-down could pose risks to revenue consistency and profitability.
  
• Continued economic headwinds, with companies slow to adopt new technologies, could limit revenue growth and market expansion efforts.
  
• High competition in the contact center as a service (CCaaS) market, especially in large markets like Germany with traditionally low SaaS adoption, could impact revenue and market share growth ambitions.

Valuation

• The analysts have a consensus price target of €8.5 for LeadDesk Oyj 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 €44.5 million, earnings will come to €6.5 million, and it would be trading on a PE ratio of 8.1x, assuming you use a discount rate of 7.5%.
• Given the current share price of €6.22, the analyst price target of €8.5 is 26.8% 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.