AI Pivot And Margin Expansion Will Drive Long Term Upside Potential

Catalysts

About Siili Solutions Oyj

Siili Solutions Oyj is a digital transformation partner that designs, builds and runs AI powered software and data solutions for large and mid sized organizations.

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

• The company wide pivot toward data and AI, including the goal to be a pioneer in AI powered digital development, positions Siili to capture rising client spend on AI initiatives and gradually lift revenue growth and billable rates.
• Ongoing organizational simplification, realignment around three concrete client need types and change negotiations targeting up to EUR 4.1 million to EUR 4.5 million in annual savings should structurally improve net margins once fully implemented by early October.
• The scaling of AI advisory services and recruitment of principal consultants with deep subject matter expertise supports a shift toward higher value, value driven end to end projects, which can enhance pricing power and earnings quality.
• Systematic upskilling, with roughly 400 employees having completed the AI development course, combined with a capacity focus on data and AI roles, should raise utilization, protect day rates and support operating margin resilience as demand for AI skills accelerates.
• Expansion in international markets through specialized subsidiaries such as Supercharge, Siili Auto and the newly acquired Integrations Group, alongside a strong balance sheet with an equity ratio close to 50% and net debt near zero, enables selective growth investments that can support revenue and earnings once global IT demand and automotive related uncertainty normalize.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Siili Solutions Oyj's revenue will grow by 1.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.5% today to 3.6% in 3 years time.
• Analysts expect earnings to reach €4.1 million (and earnings per share of €0.51) by about December 2028, up from €520.0 thousand today.
• 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 13.3x on those 2028 earnings, down from 70.8x today. This future PE is lower than the current PE for the GB IT industry at 28.9x.
• Analysts expect the number of shares outstanding to grow by 0.44% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.63%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Prolonged weakness in the international IT services market, particularly in automotive where tariff discussions and trade tensions are already depressing demand, could keep utilization low and delay recovery in project volumes, putting continued pressure on revenue and EBITA.
• If client decision making remains slow and development backlogs keep building without a clear market upturn, Siili's largely time based billing model may struggle to absorb its roughly 1,000 person capacity efficiently, constraining both top line growth and net margins.
• The industry shift from hourly billing toward higher value, fixed price and outcome based AI projects may take longer than management anticipates, limiting Siili's ability to fully monetize AI driven productivity gains, which would cap earnings growth even if delivery efficiency improves.
• Execution risk around repeated organizational changes and ongoing change negotiations covering about 250 people, with up to 47 potential reductions, could disrupt sales, delivery and employee morale at a time when the company is pivoting toward data and AI, reducing operational efficiency and profitability.
• Dependence on entering new verticals such as defense, where market access is slow and reference cases are limited, creates a risk that diversification and AI led growth avenues fail to scale in the next few years, leaving revenue and long term earnings more exposed to stagnating core segments.

Valuation

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

• The analysts have a consensus price target of €5.2 for Siili Solutions Oyj based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be €114.7 million, earnings will come to €4.1 million, and it would be trading on a PE ratio of 13.3x, assuming you use a discount rate of 8.6%.
  
• Given the current share price of €4.54, the analyst price target of €5.2 is 12.7% 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.