European Digital Sovereignty And Defence Spending Are Expected To Drive Long-Term Cybersecurity Demand

Catalysts

About Clavister Holding AB (publ.)

Clavister Holding AB provides cybersecurity solutions with a particular focus on European customers in both civilian and defence markets.

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

• Rising European focus on digital sovereignty, including emerging rules that favor EU based cybersecurity vendors in public procurement, is likely to shift larger defence and civil contracts toward Clavister and support sustained revenue growth and scale driven EBIT expansion.
• Structural increases in European defence spending, combined with Clavister's design wins on key platforms and its TactiGate cross domain product with Saab, position the company to capture a growing share of high ticket, long life cycle projects, supporting multi year revenue visibility and operating leverage.
• The extended Arrow Electronics distribution agreement across 11 additional European countries broadens access to resellers and end customers, which should accelerate civilian segment growth, deepen ARR and improve gross margins as software and services scale.
• A resilient high margin software centric model built on standardized products, with no bespoke code branches, allows incremental defence and civil volumes to drop through with limited OpEx additions, underpinning further EBITDA margin expansion as net sales grow.
• Growing recognition of cybersecurity as non discretionary spend despite macro caution, evidenced by continued double digit net sales growth and an expanding order backlog into 2029, suggests Clavister can compound revenues while maintaining strong gross margins and improving earnings quality.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Clavister Holding AB (publ.)'s revenue will grow by 17.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from -13.7% today to 20.8% in 3 years time.
• Analysts expect earnings to reach SEK 73.5 million (and earnings per share of SEK 0.22) by about December 2028, up from SEK -29.8 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 41.9x on those 2028 earnings, up from -29.9x today. This future PE is greater than the current PE for the SE Software industry at 27.1x.
• 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 6.99%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Persistent supply chain bottlenecks in military hardware, similar to those now threatening to push significant Q4 deliveries into Q1, could become structural rather than temporary. This would cap the company’s ability to convert its large multi year defence backlog into realized revenue and depress EBIT over time.
• If European public procurement and digital sovereignty initiatives are implemented more slowly, watered down in legislation or face political reversal, the expected shift of contracts toward European cybersecurity vendors could underdeliver. This would limit top line growth and constrain long term net margin expansion.
• Defence related projects are lumpy, subject to ministerial level decisions and can be delayed or reprioritized by geopolitical or budget changes. This may create extended periods of weak order intake and volatile quarterly results that undermine earnings visibility and compress valuation multiples.
• Macroeconomic caution and postponed IT projects across Europe, even if cybersecurity is relatively protected, could still slow new civilian ARR additions and renewals. This could lead to lower recurring revenue growth and weaker operating leverage than implied by current EBITDA margin milestones.
• As the company leans further into high growth defence and cross domain products with large single platform exposures and continued R&D needs, any execution misstep, cost overrun or product delay could erode the currently strong 80% gross margin and stall the trajectory toward higher sustainable earnings.

Valuation

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

• The analysts have a consensus price target of SEK6.63 for Clavister Holding AB (publ.) based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be SEK353.1 million, earnings will come to SEK73.5 million, and it would be trading on a PE ratio of 41.9x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of SEK2.88, the analyst price target of SEK6.63 is 56.5% 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.