AI Adoption And Margin Risks Will Test This Construction Software Story

Catalysts

About SmartCraft

SmartCraft provides software tools that help smaller construction and property management companies plan work, manage projects and communicate more efficiently.

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

• Although SmartCraft is rolling out AI driven offerings such as Spark and Flow that are already being used for faster, more automated quoting in Electro and HVAC, the benefit could be limited if small contractors remain slow to change long held manual routines. This would cap the uplift to revenue growth and delay any improvement to net margins.
• While decades of sector specific data and embedded customer workflows position SmartCraft well as more tasks in construction become digitised, there is a risk that new niche tools and start ups fragment demand. This could keep pricing power in check and weigh on ARR growth and earnings.
• Although there is a very large pool of potential customers that historically have not used any digital solution, smaller firms may continue to postpone software spending if the soft macro environment persists. This would limit the company’s ability to convert this untapped base into recurring revenue and scale EBITDA.
• While the move to a business area structure and focus on cross selling across SME Construction, Electro, HVAC & Plumbing and Enterprise is intended to lift wallet share per customer, higher recruitment and marketing costs, such as trade fairs, could offset that effect and hold back improvements in the EBITDA minus CapEx margin.
• Although AI based workflows and value focused pricing on products like Bygglet, where prices were raised about 10% for 2026, may support monetisation of the existing base and reduce churn over time, competitive pressure and customer sensitivity to fee increases could constrain future price changes. This could limit the acceleration in ARR and earnings growth.

Assumptions

This narrative explores a more pessimistic perspective on SmartCraft compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming SmartCraft's revenue will grow by 11.3% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 18.0% today to 28.8% in 3 years time.
• The bearish analysts expect earnings to reach NOK 218.9 million (and earnings per share of NOK 1.22) by about February 2029, up from NOK 99.3 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 bearish analyst cohort, the company would need to trade at a PE ratio of 18.5x on those 2029 earnings, down from 27.1x today. This future PE is lower than the current PE for the NO Software industry at 30.6x.
• The bearish analysts expect the number of shares outstanding to decline by 0.87% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.87%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Small construction and property firms, especially in Norway and other core markets, may continue to delay adopting digital tools despite SmartCraft's AI offerings like Spark and Flow. This would hold back ARR growth and keep revenue progress closer to the current 8.4% annual pace rather than accelerating.
• New local and niche competitors, including recent entrants in markets such as Finland, could chip away at SmartCraft's long term advantage from its historical data and workflows. This may limit pricing power on products like Bygglet and weigh on net margins even as the company pursues value based pricing.
• Macro pressure in key geographies, particularly the soft market mentioned in Norway and the still uncertain activity levels in Sweden, could persist for longer than management expects. This would constrain new customer wins, slow cross sell efforts across Electro, HVAC & Plumbing, SME Construction and Enterprise, and cap earnings growth.
• Expansion outside Scandinavia, such as the early rollout of Locka into the U.K. and more Finnish customers, may require higher ongoing selling and support costs than anticipated. This would put pressure on the EBITDA minus CapEx margin if revenue in those newer markets does not scale quickly.
• SmartCraft's long term plan to lift organic growth to the 15% to 20% range relies on AI driven products, cross sell and M&A. If any of these pillars underperform, for example due to slower uptake of Spark and Flow or fewer value accretive acquisitions, the company could fall short of that target, leading to lower earnings than implied in a more optimistic share price view.

Valuation

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

• The assumed bearish price target for SmartCraft is NOK20.0, which represents up to two standard deviations below the consensus price target of NOK27.25. This valuation is based on what can be assumed as the expectations of SmartCraft's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NOK31.0, and the most bearish reporting a price target of just NOK20.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be NOK760.2 million, earnings will come to NOK218.9 million, and it would be trading on a PE ratio of 18.5x, assuming you use a discount rate of 7.9%.
  
• Given the current share price of NOK16.35, the analyst price target of NOK20.0 is 18.2% 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.