AI Investments And Acquisitions Like Unbolt Will Expand Digital Real Estate Services

Key Takeaways

• Strategic acquisitions and AI investments are expected to boost revenue and operational efficiencies, driving future earnings growth.
  
• Subscription models and cost control measures support stable, recurring revenues and improved profitability.
  
• Spir Group's financial health is vulnerable to real estate market fluctuations, increased debt risk from acquisitions, and potential revenue loss from policy and grant changes.

Catalysts

Provides software solutions in Norway, Sweden, and internationally.

• The acquisition of Unbolt strengthens Spir Group's real estate offering with unique property condition and energy data, likely driving revenue growth through enhanced product offerings and increased market share in the real estate sector.
  
• The recovery in the Norwegian and Swedish real estate markets is expected to increase transaction-based revenues, positively impacting the company's total revenues and potentially boosting net margins through higher sales volumes.
  
• Spir Group's strategy to grow through bolt-on acquisitions, like those of Unbolt and Prosper Ai, along with investments in AI-driven services and new product offerings, suggests potential for increased revenue and improved operational efficiencies, contributing to future earnings growth.
  
• The shift towards subscription-based revenue models and increased demand for digital solutions such as Ambita’s Byggesøknaden indicates steady growth in recurring revenues, which supports revenue stability and can contribute to enhanced gross profit margins.
  
• Continued cost control measures and strategic investments in product development are anticipated to further improve adjusted EBITDA margins, enhancing overall profitability and free cash flow generation capabilities.

Spir Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Spir Group'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 4.0% in 3 years time.
• Analysts expect earnings to reach NOK 53.6 million (and earnings per share of NOK 0.49) by about February 2028, up from NOK 26.9 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 42.2x on those 2028 earnings, down from 43.2x today. This future PE is lower than the current PE for the NO Software industry at 43.2x.
• Analysts expect the number of shares outstanding to grow 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 8.29%, as per the Simply Wall St company report.

Spir Group Future Earnings Per Share Growth

Risks

• Spir Group's revenue growth is highly dependent on the real estate market's performance in Norway and Sweden; any downturn in these markets could negatively impact transaction-based revenues.
  
• The acquisition of Unbolt required financing through increased debt, which adds financial risk and impacts net earnings due to potential interest expenses and repayment obligations.
  
• Reductions in grants that previously contributed to revenue, such as those impacting Boligmappa, could lead to decreased other revenue streams and pressure on overall profitability.
  
• Future changes in the open data policy in Sweden might negatively impact Metria's revenue, though expectations are set for gross profit improvements; this regulatory risk could still affect total revenue.
  
• The acquisition-driven growth strategy incurs substantial capital expenditures and integration risks, potentially impacting net margins if anticipated synergies and efficiencies do not materialize.

Valuation

• The analysts have a consensus price target of NOK11.0 for Spir Group 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 NOK1.3 billion, earnings will come to NOK53.6 million, and it would be trading on a PE ratio of 42.2x, assuming you use a discount rate of 8.3%.
  
• Given the current share price of NOK8.76, the analyst price target of NOK11.0 is 20.4% 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.