AI Adoption And Subscription Expansion Will Support Long Term Earnings Improvement

Catalysts

About Growens

Growens develops and scales cloud based messaging and digital content design solutions for global businesses.

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

• Acceleration in the Beefree business unit, supported by rising annual recurring revenue in dollars and a 22% increase in reported revenues, positions the company to compound subscription based income and expand overall group revenue.
• Growing demand for embedded content editing tools, supported by Beefree SDK adoption and new add ons such as HTML importer and Hosted Row, should drive higher revenue per client and improve gross margins as the mix shifts further toward SaaS.
• Industry wide adoption of AI in software discovery, coding and content creation creates an opportunity for Growens to become natively integrated into AI assisted coding platforms and to monetize AI agents within its design suite, supporting faster top line growth and higher net earnings over time.
• Ongoing optimization of Agile Telecom traffic, with management explicitly prioritizing higher margin contracts over pure volume, is expected to sustain gross profit growth despite flat or declining revenues and to support gradual improvement in EBITDA margins.
• Progressive release of escrowed cash and a still positive net cash position provide funding capacity for continued sales, marketing and R&D investments without excessive dilution or leverage, supporting medium term growth in earnings per share.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Growens's revenue will grow by 3.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from -4.1% today to 1.5% in 3 years time.
• Analysts expect earnings to reach €1.2 million (and earnings per share of €0.04) by about December 2028, up from €-3.1 million 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 84.6x on those 2028 earnings, up from -12.9x today. This future PE is greater than the current PE for the IT Software industry at 21.7x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.18%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Structural decline in Agile Telecom SMS and one time password traffic as customers migrate to cheaper alternatives such as app notifications and passkeys could outweigh mix driven margin gains and lead to sustained top line pressure. This could ultimately constrain group revenue growth and EBITDA expansion.
• Heavy and rising investment in Beefree marketing, sales and research and development to capture AI and SDK opportunities may not translate into sufficient customer or pricing power. This could leave the group with persistently negative EBITDA and net earnings despite revenue growth.
• Rapid changes in software discovery and development driven by AI chatbots and AI assisted coding could erode Beefree's organic acquisition channels and favor larger integrated platforms. This could limit recurring revenue growth and keep long term net margins below expectations.
• High customer concentration and regulatory uncertainty in Agile Telecom, including evolving rules from telecom authorities and potential changes in foreign traffic economics, could trigger sudden volume or pricing shocks that compress gross profit and depress earnings.
• Use of cash for dividends, ongoing working capital swings and uncertain timing of escrow releases may weaken the net cash position over time. This could reduce financial flexibility to fund AI and product development and increase the risk of dilution or leverage, which would weigh on future earnings per share.

Valuation

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

• The analysts have a consensus price target of €4.1 for Growens 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 €80.7 million, earnings will come to €1.2 million, and it would be trading on a PE ratio of 84.6x, assuming you use a discount rate of 12.2%.
  
• Given the current share price of €2.82, the analyst price target of €4.1 is 31.2% 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.