Cloud And AI Solutions Will Redefine IT Across Europe

Key Takeaways

• Streamlined operations, leadership changes, and focused sales strategy are expected to significantly boost organic growth, margins, and overall profitability.
  
• Investments in digital consulting, AI services, and software, along with market trends in regulatory compliance and outsourcing, position Tietoevry for outsized recurring revenue gains.
  
• Prolonged weak growth, operational inefficiencies, and disruptive industry trends threaten market relevance, margins, and profitability amid intensifying competition and ongoing demand for high innovation investment.

Catalysts

Operates as a software and services company.

• Analyst consensus sees post-Tech Services divestment yielding incremental revenue and margin improvement, but this likely understates the upside; management's sharpened sales focus, sweeping leadership overhaul, and operational cost reset could unlock a step-change in sustainable organic growth and drive margins meaningfully higher than currently forecast.
  
• While the consensus expects international scaling of Create and Banking to lift revenues, a more assertive customer orientation and continued investment in digital consulting, AI-embedded services, and software platforms-combined with a record order backlog-position Tietoevry for outsized gains in both recurring revenues and operating leverage, far beyond analyst base case expectations.
  
• The company's comprehensive cost optimization program, targeting at least €150 million in run-rate savings by year-end 2026 with 70 percent of reductions from SG&A, is set to rapidly transform profitability, potentially adding several percentage points to net margin and freeing up substantial cash flow for reinvestment and capital returns.
  
• Heightened demand for secure, compliant digital transformation solutions across Europe, driven by new data regulations and accelerating cyber threats, will disproportionately benefit Tietoevry's already strong Nordics/European franchise, translating to above-market revenue growth and enhanced long-term client retention economics.
  
• As the adoption of "Everything-as-a-Service" and IT outsourcing accelerates, Tietoevry's strengthening local market presence, proven delivery track record, and modular software portfolio position it to secure long-duration, higher-margin managed services contracts, driving durable growth in both top-line and free cash flow.

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 8.8% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -6.4% today to 14.5% in 3 years time.
• The bullish analysts expect earnings to reach €279.0 million (and earnings per share of €2.05) by about July 2028, up from €-163.2 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 10.9x on those 2028 earnings, up from -10.7x today. This future PE is lower than the current PE for the GB IT industry at 16.6x.
• Analysts expect the number of shares outstanding to decline by 0.28% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.24%, as per the Simply Wall St company report.

TietoEVRY Oyj Future Earnings Per Share Growth

Risks

• Sustained lack of organic revenue growth, with nearly flat growth over the last 12 years while the market has compounded at 4 to 7 percent, raises concerns about the company's long-term market relevance and increases the risk that revenues will stagnate or decline further.
  
• Ongoing challenges in integrating acquired businesses and persistent high cost and SG&A base point to structural inefficiencies in the organization, which may continue to erode net margins and limit operating income despite cost-cutting measures.
  
• Weak demand and price pressure in the consulting and IT markets, particularly in the Create segment, combined with clients postponing or pausing noncritical projects, suggests the company could face continued revenue declines and margin compression if macroeconomic or geopolitical headwinds persist.
  
• Increasing adoption of automation, AI, and cloud-native solutions by clients could erode demand for Tietoevry's legacy IT services, creating pricing pressure and increasing the risk that Tietoevry loses market share and revenue to global competitors like Accenture and AWS.
  
• The need for continued high R&D investment to stay competitive, particularly in the Banking segment where competitors spend more than Tietoevry's approximate 10 percent of segment revenue, poses a risk that net income and cash flow could remain under pressure if growth does not materialize and reinvestment returns remain uncertain.

Valuation

• The assumed bullish price target for TietoEVRY Oyj is €20.0, 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 €20.0, and the most bearish reporting a price target of just €12.3.
  
• 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 €279.0 million, and it would be trading on a PE ratio of 10.9x, assuming you use a discount rate of 9.2%.
  
• Given the current share price of €14.79, the bullish analyst price target of €20.0 is 26.1% 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.