Digitization In Nordics And UK Construction Will Unlock Market Potential

Key Takeaways

• Rising demand for digital solutions and regulatory compliance in construction supports SmartCraft's recurring revenue growth, customer retention, and expanding market opportunity.
  
• Strong financials and ongoing innovation enable SmartCraft to scale through product expansion, cross-selling, and value-accretive acquisitions in a fragmented market.
  
• High customer attrition, integration setbacks, slow digital adoption, rising competition, and sector concentration threaten SmartCraft's revenue growth, margin stability, and long-term market expansion.

Catalysts

Provides software solutions to the construction industry in Norway, Sweden, Finland, and the United Kingdom.

• Construction firms' ongoing shift from manual processes to digital workflows-especially in the Nordics and U.K., where penetration is only 10–15%-creates a large, underexploited addressable market; SmartCraft's growing pipeline, rising sales leads and newly launched products position the company to accelerate revenue growth as digital adoption increases.
  
• Increasing regulatory demands for safety, documentation, and reporting in construction are expected to further drive adoption of SmartCraft's solutions, which automate compliance and quality control, supporting higher customer retention and boosting recurring revenues and margins over time.
  
• High recurring revenue (now >95%), expanding organic ARR growth, and stabilization of churn/downgrade levels provide greater visibility and resilience in earnings, paving the way for sustained net margin improvement as operating leverage builds with scale.
  
• Ongoing innovation and product expansion-such as the successful launches of SmartCraft Spark and BIM modules and an increased focus on cross-selling in the U.K.-are expected to lift ARPU, lengthen customer lifetime value, and open new sources of revenue.
  
• SmartCraft's solid balance sheet, robust operating cash flow, and proven integration track record equip it to capitalize on margin-accretive M&A in a fragmented market, which can drive top-line growth, operational synergies, and further margin gains.

SmartCraft Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SmartCraft's revenue will grow by 12.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 17.9% today to 28.5% in 3 years time.
• Analysts expect earnings to reach NOK 218.2 million (and earnings per share of NOK 1.27) by about September 2028, up from NOK 97.7 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 29.7x on those 2028 earnings, down from 44.6x today. This future PE is lower than the current PE for the NO Software industry at 35.9x.
• Analysts expect the number of shares outstanding to decline by 1.14% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.66%, as per the Simply Wall St company report.

SmartCraft Future Earnings Per Share Growth

Risks

• Elevated levels of customer churn and downgrades, particularly due to bankruptcies and macroeconomic headwinds in core markets like Finland, Norway, and Sweden, pose a persistent risk; this directly threatens recurring revenue growth and could lead to slower earnings expansion if not addressed.
  
• Acquisition integration challenges, illustrated by lower margins in acquired entities such as Locka and ongoing transitions from nonrecurring to recurring revenue, may continue to exert downward pressure on group-wide net margins, especially if operational synergies and profitability improvements take longer to realize.
  
• Despite the large addressable market, penetration rates remain low (10-15%), and slow digital adoption-especially among SMEs in the construction sector-could result in elongated sales cycles and slower-than-anticipated revenue growth over the long term.
  
• Intensifying competition-including the risk of global tech giants and new SaaS entrants leveraging AI to rapidly develop rival products-may lead to pricing pressure and potential customer churn, which would negatively impact both market share and future revenue streams.
  
• Dependence on the cyclical construction sector, combined with a strong geographic focus on the Nordics and the U.K., exposes SmartCraft to sector-specific and regional downturns; this could negatively impact both top-line growth and margin stability in periods of macroeconomic stress.

Valuation

• The analysts have a consensus price target of NOK32.5 for SmartCraft 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 NOK765.6 million, earnings will come to NOK218.2 million, and it would be trading on a PE ratio of 29.7x, assuming you use a discount rate of 7.7%.
• Given the current share price of NOK26.3, the analyst price target of NOK32.5 is 19.1% 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.