AI And High End BPO Expansion Will Define The Next Phase

Catalysts

About Systems

Systems Limited is a global IT and business process services company focused on cloud, data, AI, and high end BPO across banking, telco, retail and other enterprise verticals.

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

• The company is leaning hard into AI and Gen AI across its entire delivery model, using tools like code assistants and AI enabled BPO to bid more aggressively on projects. This can support revenue growth while protecting operating and net margins through higher productivity.
• Global demand for enterprise grade AI on proprietary data, combined with Systems' large pool of Pakistan based talent at roughly 30% to 50% lower cost than Indian peers, positions the firm to compete for more complex transformation work. This can support higher value contracts and EBITDA.
• Enterprise customers in banking, financial services and telco are under pressure to modernize, personalize and defend share against fintech and digital challengers, and Systems is already deeply embedded in these verticals. This can sustain project pipelines and support top line growth and earnings.
• The rebased global shared services and high end BPO platform, supported by the British American Tobacco shared services acquisition, gives Systems a ready made reference in complex marketing, finance and consumer engagement work. This can help win similar CPG and multinational mandates and support both revenue and margin mix.
• Management is actively pursuing M&A not just for scale but for senior talent and new offerings, at a time when many global IT players are reassessing growth. This can widen Systems' service portfolio and geographies and support long term revenue and profit expansion.

Assumptions

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

• The bullish analysts are assuming Systems's revenue will grow by 29.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 13.0% today to 17.5% in 3 years time.
• The bullish analysts expect earnings to reach PKR 29.0 billion (and earnings per share of PKR 19.7) by about January 2029, up from PKR 10.0 billion 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 34.3x on those 2029 earnings, up from 25.0x today. This future PE is greater than the current PE for the PK IT industry at 23.4x.
• The bullish analysts expect the number of shares outstanding to grow by 0.31% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 34.26%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• AI assisted coding, low code tools and outcome based contracts are already putting pricing pressure on new projects, and Systems is explicitly passing some productivity gains back to customers, which can cap billing rates and limit how much revenue and earnings can grow from each developer hour.
• Management is leaning heavily into M&A, global shared services and new AI offerings while also upskilling a large Pakistan based workforce. If these bets do not translate into scalable contracts or face integration issues, the upfront spend on talent and acquisitions could weigh on operating margins and net profit.
• The company depends on a concentrated delivery footprint where 83.4% of professional staff are in Pakistan and 57% of revenue comes from the Middle East and Africa. Any regional disruption, regulatory change or slowdown in key markets like Saudi Arabia could affect project pipelines, collections and overall revenue and earnings.
• Systems is positioning AI as an opportunity rather than a threat, but basic BPO work and simpler development tasks are already described as disrupted. If higher value enterprise projects do not ramp fast enough, the mix shift could pressure revenue growth and EBITDA margins.
• There is clear competitive intensity, with Systems going head to head with large Indian and global IT firms and acknowledging customer demands for cost savings and 10% to 20% ROI from AI. If labor arbitrage or brand strength are not enough to consistently win and scale larger client accounts, revenue growth, operating leverage and earnings could fall short of optimistic expectations.

Valuation

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

• The assumed bullish price target for Systems is PKR277.0, which represents up to two standard deviations above the consensus price target of PKR215.5. This valuation is based on what can be assumed as the expectations of Systems'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 PKR277.0, and the most bearish reporting a price target of just PKR179.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be PKR165.9 billion, earnings will come to PKR29.0 billion, and it would be trading on a PE ratio of 34.3x, assuming you use a discount rate of 34.3%.
  
• Given the current share price of PKR169.16, the analyst price target of PKR277.0 is 38.9% 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.