Business Services And Digital Green Will Fuel Transformation

Key Takeaways

• Strategic M&A in high-growth sectors like Business Services and Software boosts earnings and EBITDA prospects.
  
• Transformation to consultancy and proprietary platforms aims for long-term revenue growth and EBITDA margin expansion.
  
• Financial pressure from increased net debt and heavy reliance on M&A could challenge profitability and impact cash flow and shareholder value if synergies are not realized.

Catalysts

Distributes value-added information technology (IT) software and technologies in Italy and internationally.

• SeSa is targeting double-digit growth in Q4 2025, driven by the Business Services sector and a recovery in the Digital Green segment. This is expected to positively impact revenues and EBITDA.
  
• The company’s ongoing M&A strategy focuses on high-margin and growth sectors like Business Services and Software, which should enhance future earnings and EBITDA.
  
• Improved financial charges in Q4 due to decreased interest rates will benefit net financial results, impacting net margins positively.
  
• SeSa’s focus on a group transformation towards consultancy and proprietary software platforms is aimed at supporting long-term revenue growth and EBITDA margin expansion.
  
• Expected improvements in cash flow generation and working capital efficiency should enhance future free cash flow, further supporting profitability and reducing net debt.

SeSa Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SeSa's revenue will grow by 12.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.0% today to 2.2% in 3 years time.
• Analysts expect earnings to reach €102.3 million (and earnings per share of €6.48) by about May 2028, up from €65.7 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 23.1x on those 2028 earnings, up from 17.4x today. This future PE is greater than the current PE for the GB Electronic industry at 12.1x.
• Analysts expect the number of shares outstanding to decline 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 12.34%, as per the Simply Wall St company report.

SeSa Future Earnings Per Share Growth

Risks

• The decline in EBITDA by 2% year-on-year, mainly due to adverse market conditions in the Digital Green and VAS sectors and margin erosion in system integration, indicates potential risks to profitability and operating margin.
  
• A significant decrease in Group EAT Adjusted by 10% compared to the previous year may impact overall net earnings, reflecting challenges in maintaining profit levels.
  
• The increase in net debt from €62 million to €92.2 million, despite efforts to reduce it, points to ongoing financial leverage and interest obligations that could strain future cash flow and liquidity.
  
• Heavy reliance on mergers and acquisitions for growth could present integration risks and financial pressure if these acquisitions do not yield expected synergies and revenue contributions, potentially affecting net margins.
  
• Planned significant investments, including €130 million in M&A and CapEx, require precise execution and successful integration to avoid financial strain or dilution of shareholder value, impacting earnings and free cash flows.

Valuation

• The analysts have a consensus price target of €139.05 for SeSa 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 €180.0, and the most bearish reporting a price target of just €85.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €4.6 billion, earnings will come to €102.3 million, and it would be trading on a PE ratio of 23.1x, assuming you use a discount rate of 12.3%.
  
• Given the current share price of €74.1, the analyst price target of €139.05 is 46.7% 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.