Acquisitions Of Visma Business Customers And BrightCom Will Strengthen Market Position In 2025

Key Takeaways

• Strategic acquisitions and geographical expansion are strengthening market position, offering growth opportunities and potential revenue increase as the market rebounds.
  
• Investments in sales force expansion and operational excellence aim to secure larger market share and improve efficiency, enhancing long-term revenue growth and net margins.
  
• Expanding trainee and sales programs amid weak market conditions risks resource underutilization and negatively influences margins and financial health.

Catalysts

Provides digital solutions to medium-sized companies in Sweden, Norway, and Denmark.

• The geographical expansion and M&A activities have strengthened Exsitec's market position, particularly with the acquisition of the Visma Business customer base in Denmark. This is expected to provide growth opportunities in 2025 and could boost revenue as the market rebounds.
  
• The record order intake in Q4 2024, driven by initiatives like cloud conversion offerings and data analytics, suggests a potential for strong future sales growth, which could positively impact revenue and earnings. If the sales levels continue, the company could see improved resource utilization, enhancing operational efficiency and net margins.
  
• Exsitec has invested heavily in expanding its sales force and running trainee programs, despite a challenging market. This proactive approach aims to secure a larger market share when the market rebounds, potentially increasing long-term revenue growth.
  
• Integration of recent acquisitions like BrightCom Solutions and the business unit from ECIT is a high priority for 2025. Successfully integrating these could lead to increased cross-selling opportunities and improved operational efficiency, positively impacting net margins and earnings.
  
• Exsitec plans to focus on operational excellence in 2025 by enhancing delivery capacity and improving efficiency. This, along with a reduced employee turnover, could lead to improved net margins and earnings as the market conditions improve.

Exsitec Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Exsitec Holding's revenue will grow by 10.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.3% today to 11.1% in 3 years time.
• Analysts expect earnings to reach SEK 123.0 million (and earnings per share of SEK 9.14) by about February 2028, up from SEK 59.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.3x on those 2028 earnings, down from 29.2x today. This future PE is greater than the current PE for the SE IT industry at 15.0x.
• Analysts expect the number of shares outstanding to grow by 0.22% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.57%, as per the Simply Wall St company report.

Exsitec Holding Future Earnings Per Share Growth

Risks

• The company experienced a challenging market in 2024 with a cautious business sentiment, leading to customers delaying small tasks which resulted in lower resource utilization in professional services, potentially impacting revenue and net margins.
  
• Organic growth in 2024 was negative, with a decline of 5% in the fourth quarter. Professional services witnessed weak performance, significantly affecting earnings and EBITA, highlighting risks to future revenue generation.
  
• The company's EBITA decreased to SEK 30 million from SEK 45 million the previous year, primarily due to lower volume in professional services and costs from the increased trainee program, thereby affecting net margins and earnings.
  
• The decision to expand the trainee and sales programs in a currently weak market may lead to underutilization of resources if sales growth does not materialize, posing a risk to net margins and overall financial performance.
  
• The recent acquisition-driven growth exposes the company to integration risks, and any delays or inefficiencies in incorporating the acquired companies could impact operational efficiency and earnings.

Valuation

• The analysts have a consensus price target of SEK182.0 for Exsitec Holding 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 SEK1.1 billion, earnings will come to SEK123.0 million, and it would be trading on a PE ratio of 23.3x, assuming you use a discount rate of 6.6%.
  
• Given the current share price of SEK128.5, the analyst price target of SEK182.0 is 29.4% 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.