AI Adoption And Digital Shift Will Unlock New Legal Markets

Key Takeaways

• Growth is driven by strong adoption of AI-powered legal tools and a shift from print to profitable digital subscription services.
  
• Upselling and digital expansion into new markets, combined with cost efficiencies, are expected to boost margins and diversify revenue.
  
• Structural weaknesses in legacy segments, overreliance on AI-driven growth, and rising competition threaten Karnov Group's margin expansion, revenue stability, and long-term earnings visibility.

Catalysts

Provides online and offline information products and services for professionals in the areas of legal, tax and accounting, environmental, and health and safety in Denmark, Norway, France, Sweden, Portugal, and Spain.

• Continued rapid adoption of AI-powered legal research and workflow tools is broadening the company's offering and improving customer efficiency, with measurable productivity gains and high satisfaction reported-driving recurring revenue growth as clients shift to higher-tier online subscriptions.
  
• Ongoing migration from offline and print sales to digital, subscription-based online services is raising gross margins and earnings visibility, especially as online products command higher profitability and user stickiness.
  
• Upselling AI solutions and higher-value packages to existing customers on annual contracts is accelerating organic growth in Karnov's core markets, supporting a durable increase in revenue and EBITDA margins.
  
• Successful execution of cost efficiency initiatives-targeting EUR 20 million in synergies by end-2026-is driving margin improvement and will likely bolster net margins and free cash flow conversion as restructuring charges abate.
  
• Expansion of advanced digital solutions into less-penetrated geographies (Region South) and verticals is expected to unlock new growth opportunities and diversify revenue streams, reinforcing the company's long-term earnings trajectory.

Karnov Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Karnov Group's revenue will grow by 3.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.4% today to 21.6% in 3 years time.
• Analysts expect earnings to reach SEK 638.9 million (and earnings per share of SEK 4.02) by about August 2028, up from SEK 63.2 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 25.0x on those 2028 earnings, down from 206.5x today. This future PE is lower than the current PE for the SE Interactive Media and Services industry at 50.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.45%, as per the Simply Wall St company report.

Karnov Group Future Earnings Per Share Growth

Risks

• Persistent underperformance and flat organic growth in Region South, particularly in Spain (decline of -1.7% in the quarter), signals ongoing challenges in integrating new acquisitions and restructuring efforts, which may limit overall top-line revenue growth and depress group earnings over the long term.
  
• The divestment of the Spanish training business and continued weak offline (book and training) sales in Region South highlight a structural weakness in legacy product segments, raising risks that further product rationalizations and a shrinking offline revenue base could limit total revenue and margin improvement despite efforts to shift toward more profitable online offerings.
  
• Heavy reliance on accelerated AI adoption in Region North for recent growth creates concentration risk; if the wider legal sector's adoption curve plateaus sooner than expected, or if commoditization of AI tools erodes pricing power, recurring revenue and net margins could face downward pressure.
  
• Ongoing investments in future growth-such as expanded AI features for Region South and increased sales staffing-while necessary, are offsetting synergy benefits from cost-saving initiatives, leading to slower-than-expected margin expansion and ongoing restructuring costs, which could weigh on net earnings if top-line growth does not accelerate.
  
• Intensifying competition from global tech-enabled legal information providers and disruptive legal tech startups could force higher R&D spending and price competition, particularly as Karnov Group enters new markets for AI-powered workflow tools, ultimately threatening long-term pricing power, eroding EBITDA margins, and reducing earnings predictability.

Valuation

• The analysts have a consensus price target of SEK123.667 for Karnov 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 SEK3.0 billion, earnings will come to SEK638.9 million, and it would be trading on a PE ratio of 25.0x, assuming you use a discount rate of 6.4%.
  
• Given the current share price of SEK121.0, the analyst price target of SEK123.67 is 2.2% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.