Exchange Disruption And Weak Demand Will Slowly Give Way To Operational Recovery

Catalysts

About Cint Group

Cint Group runs a global programmatic exchange that connects buyers and suppliers of market research and media measurement data.

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

• Although the unified Cint Exchange is now largely live and intended to replace multiple legacy systems, the recent migration has caused short term disruption and a 20% quarter on quarter net sales decline. Any future benefit to revenue depends on stabilising volumes and avoiding further operational friction.
• Although Cint can now redirect more than two years of R&D effort from platform build towards product development such as the Lucy chatbot, there is a risk that customers do not increase usage enough for these tools to offset weaker market research demand. This would limit uplift to net sales and earnings.
• Although the partnership with Affinity Solutions gives Cint access to retail point of sale data that ties ad exposure to actual purchases, adoption by media measurement clients could be slower than expected. This would cap potential contribution to both Exchange and Media Measurement revenue and constrain margin improvement.
• Although the company has materially reduced operating costs, improved working capital and achieved an EBITA margin of 18.7%, a prolonged weak business climate for market research and tariff related caution from advertisers could keep top line growth subdued and put pressure on EBITA and cash generation.
• Although the move to a single ERP system and unified billing has brought accounts receivable down to €80 million, the lowest level since the Lucid acquisition, any reversal in collection trends or need to support large customers through migration could delay further working capital gains and limit the impact on operating cash flow and net debt.

Assumptions

This narrative explores a more pessimistic perspective on Cint Group 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 Cint Group's revenue will grow by 1.4% annually over the next 3 years.
• The bearish analysts are not forecasting that Cint Group will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Cint Group's profit margin will increase from 2.4% to the average SE Software industry of 12.7% in 3 years.
• If Cint Group's profit margin were to converge on the industry average, you could expect earnings to reach €20.5 million (and earnings per share of €0.05) by about January 2029, up from €3.7 million today.
• 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 12.5x on those 2029 earnings, down from 25.3x today. This future PE is lower than the current PE for the SE Software industry at 26.4x.
• The bearish 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 8.1%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The weak business environment for market research that management references as a key driver of softer Exchange volumes could last longer than expected. This would keep net sales under pressure and weigh on earnings over several years.
• The migration to the unified Cint Exchange is described as a transitional low point. However, if large and complex customers continue to face operational friction or choose to scale back activity rather than fully ramp on the new platform, revenue and EBITA margins could stay below management’s medium term targets.
• Media Measurement currently shows roughly 0% growth in constant currency with heavy exposure to the U.S. and political advertising cycles. A prolonged period of tariff related caution or muted election spend would limit long term demand, holding back both revenue growth and net margins.
• Management plans to keep operating costs and tech related CapEx broadly stable while reinvesting cash flows into growth initiatives instead of dividends. If top line recovery is slower than expected, the combination of flat costs and subdued sales would constrain earnings and free cash flow.
• The business has improved working capital and lowered net debt. However, if clients extend payment terms or the push to drive accounts receivable lower requires looser commercial terms, that could pressure pricing and margins over time and reduce the quality of operating cash flow.

Valuation

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

• The assumed bearish price target for Cint Group is SEK5.0, which represents up to two standard deviations below the consensus price target of SEK6.68. This valuation is based on what can be assumed as the expectations of Cint Group'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 SEK8.35, and the most bearish reporting a price target of just SEK5.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be €161.0 million, earnings will come to €20.5 million, and it would be trading on a PE ratio of 12.5x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of SEK2.81, the analyst price target of SEK5.0 is 43.8% 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.