New CEO Niklas Ek Will Drive Expansion With Acquisitions And Cross-Selling Strategies

Key Takeaways

• New CEO Niklas Ek and strategic initiatives could boost organic growth and sales execution, enhancing financial performance.
  
• Geographical expansion and cross-selling strategies are expected to drive revenue growth and improve market positioning in Nordics.
  
• The transition in leadership and reliance on M&A for growth amidst market caution and high costs may challenge Exsitec's revenue stability and profitability.

Catalysts

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

• The appointment of a new CEO, Niklas Ek, who has a strong track record as the Business Unit Director for ERP Sweden, suggests new strategic initiatives and potentially stronger sales execution, which could improve organic growth and revenue.
  
• Exsitec's significant increase in order intake for Q4 2024, particularly in large initiatives such as cloud conversion offerings, provides a foundation for future revenue growth, indicating robust demand in strategic areas that could enhance overall financial performance.
  
• Geographical expansion through acquisitions, such as the acquisition of over 100 customers from ECIT in Denmark, is expected to bolster market share in the Nordics and drive future revenue growth, potentially improving net revenue and market positioning.
  
• The increase in sales force and the record-high trainee program could enhance operational capacity and efficiency, suggesting a positive outlook for streamlined operations and increased earnings capacity when the market rebounds.
  
• The strategy of cross-selling additional software components to existing customers has significant potential to increase customer lifetime value and expand the revenue per customer, improving revenue growth and net margins.

Exsitec Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Exsitec Holding's revenue will grow by 9.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.3% today to 9.8% in 3 years time.
• Analysts expect earnings to reach SEK 104.2 million (and earnings per share of SEK 7.76) by about March 2028, up from SEK 59.1 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting SEK122.7 million in earnings, and the most bearish expecting SEK85.7 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 27.7x on those 2028 earnings, up from 27.3x 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 6.89%, as per the Simply Wall St company report.

Exsitec Holding Future Earnings Per Share Growth

Risks

• The transition to a new CEO and CFO could introduce instability or strategic shifts that may affect operational continuity, potentially impacting earnings.
  
• The market is described as cautious, with customers delaying smaller operational investments, which has already led to lower resource utilization in professional services, impacting revenue and net margins.
  
• Organic growth was negative for both the quarter and year, indicating potential issues in achieving revenue growth without acquisitions, affecting overall earnings.
  
• Exsitec's reliance on M&A for growth suggests potential risks related to integration challenges and the sustainability of inorganic growth strategies, impacting future revenue stability.
  
• High trainee and new employee costs amid a challenging market have affected EBITA negatively. Continued market weakness or ineffective cost management could further pressure profitability.

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 SEK104.2 million, and it would be trading on a PE ratio of 27.7x, assuming you use a discount rate of 6.9%.
• Given the current share price of SEK120.0, the analyst price target of SEK182.0 is 34.1% 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.