New Communication Channels Will Open Future Opportunities In European Markets

Key Takeaways

• LINK Mobility's local strategy in Europe and adoption of advanced channels and AI-driven bots is poised to enhance revenue and margins.
  
• Active M&A and focus on high-value clients position the company for profitable growth and expansion into new markets with improved earnings.
  
• LINK Mobility faces revenue pressure from ceasing low-value traffic and operator price hikes, with risks tied to RCS adoption, M&A strategy, and one-off revenue weakness.

Catalysts

Provides mobile and communication-platform-as-a-service solutions.

• LINK Mobility's local approach enables them to effectively penetrate less advanced European markets, leveraging their experience in the highly developed Nordic region. This strategy is expected to lead to revenue growth through increased adoption of digital communication solutions in these markets.
  
• The adoption of new channels like RCS and WhatsApp, along with AI-driven bots, is anticipated to drive higher revenues and margins. The ability to charge a premium for these advanced services suggests an improvement in net margins and overall earnings.
  
• The focus on high-value clients and more advanced CPaaS solutions is likely to result in higher gross profit margins. Terminating low-margin traffic and enhancing the revenue mix towards higher-margin products contribute to this expectation, impacting overall profitability positively.
  
• LINK's scalable business model supports an expectation of EBITDA growth outpacing gross profit growth. This operational scalability and efficiency can lead to improved net margins over time, enhancing earnings.
  
• The company's significant cash reserves and active M&A strategy provide opportunities for inorganic growth and expansion into new markets. Successful acquisitions can contribute to revenue growth and an increase in earnings through synergies and efficiency gains.

LINK Mobility Group Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming LINK Mobility Group Holding's revenue will grow by 7.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.5% today to 6.0% in 3 years time.
• Analysts expect earnings to reach NOK 515.6 million (and earnings per share of NOK 1.69) by about March 2028, up from NOK 171.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.3x on those 2028 earnings, down from 36.4x today. This future PE is lower than the current PE for the NO Software industry at 38.7x.
• Analysts expect the number of shares outstanding to decline by 0.55% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.53%, as per the Simply Wall St company report.

LINK Mobility Group Holding Future Earnings Per Share Growth

Risks

• LINK Mobility's revenue growth is being impacted by the termination of low-value traffic in the Global Messaging segment. This could result in lower overall revenue, despite a focus on higher margin traffic.
  
• The growth potential of RCS is limited as it currently has partial support across Europe. Delays in adoption, particularly if Apple does not support it broadly, could impact revenue growth associated with this channel.
  
• The company faces operator price increases, which can pressure profit margins if not fully passed on to customers. This could directly impact net margins if LINK cannot effectively negotiate price adjustments.
  
• There is execution risk associated with LINK's M&A strategy, with potential distraction from organic growth as management focuses on acquisitions and integrates new targets. This could affect earnings if targets do not perform as expected.
  
• Weakness in one-off low-margin revenues may impact short-term revenue figures, even though gross profit shows more stability or growth, potentially affecting earnings and financial projections.

Valuation

• The analysts have a consensus price target of NOK29.5 for LINK Mobility Group Holding based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be NOK8.6 billion, earnings will come to NOK515.6 million, and it would be trading on a PE ratio of 20.3x, assuming you use a discount rate of 8.5%.
• Given the current share price of NOK22.1, the analyst price target of NOK29.5 is 25.1% 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.