Expanding QA Business And Partnerships With Infineon And LG Will Drive Future Growth

Key Takeaways

• Significant investment in QA business and M&A activities suggests future growth through software testing tools and expanded product portfolio.
  
• Expanding global partnerships and developer resources aims to enhance market reach, supporting revenue growth and improved margins.
  
• Economic uncertainties and sector challenges may hinder revenue growth, affecting overall earnings and creating potential volatility for Qt Group Oyj.

Catalysts

Offers cross-platform solutions for the software development lifecycle in Finland, Norway, Germany, the United States, Japan, China, South Korea, France, the United Kingdom, and India.

• The company is heavily investing in its QA business, described as Qt 2.0, which is expected to drive future growth through increased revenue from software testing tools and services. This expansion in the QA segment plays a crucial role in sustaining future revenue and margin improvements as it offers a combination of software development and testing solutions.
  
• Qt Group is actively seeking mergers and acquisitions to add new products to their portfolio, suggesting potential future revenue streams and growth opportunities. Successfully integrating new products from M&A activities can enhance revenue and future earnings potential.
  
• The company is focused on expanding its global partnership ecosystem, including enhancing relationships with significant partners like Infineon and LG. Strengthened partnerships could drive sales growth and broaden market reach, positively impacting revenue over the long term.
  
• Investments in growing the developer and QA license sales, as well as the continued expansion of educational resources such as the Qt Academy, are positioned to support long-term growth by expanding their user and customer base, subsequently impacting revenue and potentially improving net margins.
  
• Qt Group is positioned to capitalize on the ongoing trend towards more devices requiring complex graphical user interfaces and the growing need for automated testing solutions, suggesting potential for sustained growth in developer licenses and QA solutions, supporting revenue growth and profitability.

Qt Group Oyj Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Qt Group Oyj's revenue will grow by 16.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 27.4% today to 28.7% in 3 years time.
• Analysts expect earnings to reach €94.0 million (and earnings per share of €3.71) by about April 2028, up from €57.3 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 31.0x on those 2028 earnings, up from 30.9x today. This future PE is lower than the current PE for the GB 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 6.91%, as per the Simply Wall St company report.

Qt Group Oyj Future Earnings Per Share Growth

Risks

• The distribution license revenue was expected to grow faster but only increased by around 2% over the year, which could be a concerning factor affecting overall revenue growth.
  
• Consultancy revenue remained flat, representing a significant portion of total revenue, potentially impacting net margins if the trend continues.
  
• There are notable challenges in the consumer electronics segment, as well as fluctuations in the automotive sector, which could create revenue volatility.
  
• Economic uncertainties, such as potential tariffs affecting Western automakers and slowdowns in consumer spending in Europe and the U.S., could negatively impact distribution license sales, affecting overall earnings.
  
• The QA business, despite being a focus for investment and growth, may not see the immediate revenue impact, potentially affecting short-term net margins until these investments mature.

Valuation

• The analysts have a consensus price target of €95.25 for Qt 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 €110.0, and the most bearish reporting a price target of just €83.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €327.5 million, earnings will come to €94.0 million, and it would be trading on a PE ratio of 31.0x, assuming you use a discount rate of 6.9%.
• Given the current share price of €69.65, the analyst price target of €95.25 is 26.9% 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.