Ambitious 2029 Vision Will Drive Expansion Into AI, Cybersecurity, And Data Management

Key Takeaways

• Sword Group's focus on high-growth areas like AI and cybersecurity, along with strategic acquisitions, drives significant revenue and enhances market position.
  
• Ambitious growth plans via organic and acquisition strategies in distinct geographic regions bolster earnings and enterprise value.
  
• The Group faces challenges in maintaining growth due to acquisition risks, competition, sector dependencies, and potential investment strains in cybersecurity and AI.

Catalysts

Provides IT and software solutions worldwide.

• Sword Group's strategy to specialize in high-growth areas like data management, cybersecurity, and artificial intelligence is expected to drive significant revenue growth, particularly with their focus on regulated markets.
  
• The company's ambitious plan for a 2029 vision, which includes substantial organic growth targets of 15% per year and double-digit growth through significant acquisitions, is poised to enhance earnings and enterprise value substantially.
  
• The expansion in geographic regions such as the Middle East, North America, and potential new markets in Europe, combined with strategic acquisitions, could lead to increased revenue streams and market share.
  
• Sword Group's strong presence in European institutions and strategic ambition to become a top IT player in this sector positions the company for increased recurring revenue, thereby potentially enhancing net margins.
  
• The company's focus on renewable energy sectors, cybersecurity resilience, and hybrid cloud solutions in the UK, especially with high-profile clients like SSE, is likely to enhance revenue and position Sword Group for competitive earnings growth.

Sword Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Sword Group's revenue will grow by 14.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.7% today to 7.6% in 3 years time.
• Analysts expect earnings to reach €34.2 million (and earnings per share of €3.29) by about February 2028, up from €20.1 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.4x on those 2028 earnings, down from 16.5x today. This future PE is lower than the current PE for the GB IT industry at 17.2x.
• 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 7.07%, as per the Simply Wall St company report.

Sword Group Future Earnings Per Share Growth

Risks

• The risk of not achieving planned acquisitions at reasonable prices could hinder organic growth, affecting Sword Group's revenue and overall market objectives.
  
• High dependence on the European Union institutions and consolidation in the sector could result in increased competition, putting pressure on Sword Group's recurring revenue streams and growth ambitions.
  
• Interest in cybersecurity and AI could necessitate significant investment, potentially impacting the Group’s net margins if returns on these investments do not materialize as expected.
  
• Increased focus on geographical expansion, like entering the Saudi Arabia market or acquiring companies in Ireland, involves execution risks and could result in unforeseen costs, impacting earnings.
  
• Dependency on key sectors like oil, gas, and renewables introduces vulnerability to regulatory changes and economic cycles in these industries, which can adversely affect revenue and profit stability.

Valuation

• The analysts have a consensus price target of €44.45 for Sword Group 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 €50.0, and the most bearish reporting a price target of just €39.8.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €448.7 million, earnings will come to €34.2 million, and it would be trading on a PE ratio of 14.4x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of €35.0, the analyst price target of €44.45 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.