Digital Transformation And Cloud Trends Will Unlock New Opportunities

Key Takeaways

• Atea's robust hardware, AI, and security solutions, along with expanded defense and EU projects, are projected to drive stronger and more sustained revenue and margin growth.
  
• Strategic shifts and green IT initiatives boost high-margin services, deepen customer partnerships, and unlock significant long-term earnings potential not reflected in consensus forecasts.
  
• Shifts to cloud solutions, margin pressure, operational struggles in Denmark, contract reliance, and slow service growth pose risks to Atea's revenue, profitability, and long-term stability.

Catalysts

Provides IT infrastructure and related solutions for businesses and public sector organizations in the Nordic countries and Baltic regions.

• Analyst consensus expects a lift from the Windows 10 end-of-life, but strong evidence of Atea's outperformance-such as hardware sales growth of over 20% quarter after quarter for AI-ready PCs-indicates the replacement cycle is driving a far larger and more profitable revenue opportunity than currently modeled, with elevated average transaction values and outsized sustained hardware and software revenues in the coming 12 to 18 months.
  
• Analysts broadly see demand for cloud, IT security, and AI workplace solutions as supportive, but Atea's unique regional ecosystem and deepening partnerships (Microsoft Copilot license sales nearly doubled quarter-over-quarter) suggest a step-function increase in high-margin service revenues, with AI and security spending set to intensify rapidly as regional public and private sectors respond to both regulatory requirements and real-world digital threats-magnifying earnings and margin expansion well beyond baseline forecasts.
  
• Atea's rapid expansion into defense and NATO contracts, with defense sector sales growth of 28% in Q2 and ongoing EU-wide engagement, positions the company for multi-year, large-scale project wins that provide recurring, long-dated revenue streams and improved EBITDA visibility not captured in consensus expectations.
  
• Structural transformation in Denmark and Finland, including a shift to value-based sales, cross-selling, and hiring of technical staff, will not just normalize margins but unlock significant latent earnings power, particularly as frame agreements in Finland are expected to yield a sharp rise in volumes over the next 3 to 4 years-supporting both revenue acceleration and group-wide net margin uplift.
  
• The push toward green IT and sustainable digital infrastructure is catalyzing demand from enterprise and public sector customers seeking ESG compliance, and as Atea is early in this transition with proprietary solutions, it is likely to secure premium projects and higher-margin service work-driving long-term improvement in both revenues and net margins as sustainability budgets grow.

Atea Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Atea compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Atea's revenue will grow by 9.8% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 2.1% today to 3.1% in 3 years time.
• The bullish analysts expect earnings to reach NOK 1.5 billion (and earnings per share of NOK 13.26) by about July 2028, up from NOK 764.0 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 16.3x on those 2028 earnings, down from 20.7x today. This future PE is lower than the current PE for the GB IT industry at 20.9x.
• Analysts expect the number of shares outstanding to decline by 0.14% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.37%, as per the Simply Wall St company report.

Atea Future Earnings Per Share Growth

Risks

• Accelerated industry adoption of cloud computing and digital marketplaces threatens Atea's core hardware and on-premise business, potentially leading to sustained revenue declines if customers shift away from resellers in favor of direct purchasing and cloud-based solutions.
  
• Lower gross margins in software and services, driven in part by reduced vendor incentives from major suppliers like Microsoft, place pressure on Atea's profitability, and slow normalization or ongoing changes could continue to compress net margins and EBIT in future quarters.
  
• Persistent challenges in the Danish business, including low pricing, weak cross-selling, and historically unimproved margins, increase the risk of operational underperformance, which could drag down both group EBIT and group net margins if turnaround efforts are delayed or unsuccessful.
  
• Heavy reliance on large public sector contracts, which are subject to political and regulatory uncertainty-as highlighted by the underwhelming contract volumes in Finland despite long-term agreements-creates potential for volatility and downside in revenues and earnings if contract spending lags expectations or contract terms change.
  
• The ongoing shift toward high-margin services and value-added offerings has been slow, with current growth still heavily reliant on fast-turnover PC hardware associated with Windows 10 end of life-a risk if hardware refresh cycles weaken or if Atea fails to sufficiently scale its high-margin consulting and managed services, impacting long-term revenue growth and future net margins.

Valuation

• The assumed bullish price target for Atea is NOK170.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Atea'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 NOK170.0, and the most bearish reporting a price target of just NOK132.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be NOK48.0 billion, earnings will come to NOK1.5 billion, and it would be trading on a PE ratio of 16.3x, assuming you use a discount rate of 8.4%.
• Given the current share price of NOK142.0, the bullish analyst price target of NOK170.0 is 16.5% 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.