Cloud, AI, And Cybersecurity Will Fuel Digital Transformation

Key Takeaways

• Divesting Tech Services will transform TietoEVRY into a focused software player, unlocking faster growth, premium valuation, and higher margins ahead of market expectations.
  
• Strong AI, digital consulting, and cybersecurity momentum position TietoEVRY for outperformance, improved recurring revenues, and structural profitability gains despite market volatility.
  
• Weak revenue growth, margin pressures, slow adaptation to market shifts, and ongoing restructuring raise concerns over future stability and competitiveness in evolving technology sectors.

Catalysts

Operates as a software and services company.

• While analyst consensus expects the Tech Services divestment to simply sharpen focus and boost profitability, this move is likely to drive a rapid re-rating as TietoEVRY transitions to a pure-play software and digital engineering company, unlocking a higher structural growth profile and premium multiples, positively impacting both top-line growth and net margins sooner than anticipated.
  
• Analyst consensus sees international scaling and AI-driven expansion of the Create business as long-term growth levers, but the company's actively won NATO contracts and accelerating AI project pipeline actually suggest an imminent inflection in large, high-value digital consulting deals that could deliver significant outperformance in revenues and margin expansion versus consensus.
  
• The ongoing acceleration in cloud and hybrid IT adoption across Europe aligns with TietoEVRY's deep domain expertise, positioning the company to land larger, recurring multi-year managed services and integration contracts, which will meaningfully lift recurring revenue visibility and operating leverage over time.
  
• Increasing cybersecurity risks and regulatory requirements are driving enterprises to partner with proven, regionally embedded vendors; TietoEVRY is poised to capture a greater share of these high-margin, mission-critical projects due to its established relationships, directly improving both revenue stickiness and group-wide profitability.
  
• The company's cost base is set for further material optimization as post-divestment operational integration and ongoing automation are executed, which when combined with historically below-market attrition rates, gives TietoEVRY a tangible path to structurally higher net margins regardless of near-term market softness.

TietoEVRY Oyj Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on TietoEVRY Oyj compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming TietoEVRY Oyj's revenue will decrease by 11.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -2.6% today to 12.9% in 3 years time.
• The bullish analysts expect earnings to reach €249.0 million (and earnings per share of €1.81) by about July 2028, up from €-73.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 12.8x on those 2028 earnings, up from -26.5x today. This future PE is lower than the current PE for the GB IT industry at 18.9x.
• Analysts expect the number of shares outstanding to decline 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 9.09%, as per the Simply Wall St company report.

TietoEVRY Oyj Future Earnings Per Share Growth

Risks

• Continued negative organic revenue growth, with Q1 2025 at negative 4 percent and ongoing soft market conditions across all segments, indicates weak top-line momentum and limited visibility on demand rebound, raising concerns about revenue and earnings recovery in the medium term.
  
• Intense price competition, customer overcapacity in consulting, and inability to fully pass through 4 to 5 percent annual salary inflation in the current environment are eroding operating and net margins, with management admitting it is extremely difficult to push price increases to counter rising wage costs.
  
• Slow transition from legacy software, ongoing public sector spending constraints in the Nordics, and delays in customer decision-making are affecting growth in key verticals such as Care and Industry, making revenue streams less stable and increasing the risk of inconsistent future cash flows.
  
• Strategic focus on digital engineering and AI is still in early stages, with management noting that AI-related deals are small and not yet having a significant financial impact; the company risks losing market share and growth momentum to faster-moving global competitors as industry shifts toward scalable, cloud-native and AI-first offerings.
  
• Operational and organizational changes, including the CEO transition, recent Tech Services divestment, and restructuring cost increases, introduce execution risks and potential disruption; transitional services agreement income post-divestment will be temporary, and cost base adjustments must be quickly implemented to prevent further margin and earnings pressure when these short-lived supports end.

Valuation

• The assumed bullish price target for TietoEVRY Oyj is €21.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of TietoEVRY Oyj's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €21.0, and the most bearish reporting a price target of just €13.1.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be €1.9 billion, earnings will come to €249.0 million, and it would be trading on a PE ratio of 12.8x, assuming you use a discount rate of 9.1%.
  
• Given the current share price of €16.52, the bullish analyst price target of €21.0 is 21.3% 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.