AI-Driven Insights And Payment Solutions To Accelerate Growth And Strengthen Profit Margins

Key Takeaways

• Increased automation and new features have enhanced operational efficiency and are likely to boost revenue growth and net margins.
  
• Innovative offerings and strategic user integration aim to increase ARPC and expand the customer base, supporting long-term earnings growth.
  
• Macroeconomic challenges and competition threaten Fortnox's growth goals and revenue stability, with increased reliance on variable transaction-based revenues and shifting business models.

Catalysts

Provides products, packages, and integrations for financial and administration applications in small and medium sized businesses, accounting firms, and organizations.

• Fortnox is seeing a significant increase in the automatic processing of transactions and has nearly doubled the number of vouchers automatically recorded in Q3, enhancing operational efficiency for customers. This trend of increased automation and operational efficiency could positively impact revenue growth and net margins.
  
• The company has introduced new features, such as enabling accountants to submit reports through the platform, which has already processed a significant number of reports. This expanded functionality is likely to drive further customer engagement and increased average revenue per customer (ARPC), supporting revenue growth.
  
• Fortnox's innovative product offerings, such as the non-subscription-based business card, present an opportunity to increase ARPC through transaction fees, as more customers utilize this free offering. This could improve earnings via increased usage-based revenue streams.
  
• The company's strategic focus on integrating more users into the platform, including larger companies, might not directly contribute to immediate revenue increases but suggests a long-term strategy for expanding customer base and product adoption, which ultimately impacts revenue and margins positively.
  
• The commitment to ongoing product development, such as the payment product and AI-driven insights, positions Fortnox for future growth by creating additional revenue streams and enhancing the overall value proposition of the platform, likely benefiting future revenue and earnings growth.

Fortnox Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Fortnox's revenue will grow by 20.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 35.3% today to 40.0% in 3 years time.
• Analysts expect earnings to reach SEK 1.4 billion (and earnings per share of SEK 2.24) by about December 2027, up from SEK 690.0 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 41.3x on those 2027 earnings, down from 64.4x today. This future PE is greater than the current PE for the SE Software industry at 40.8x.
• Analysts expect the number of shares outstanding to grow by 0.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.54%, as per the Simply Wall St company report.

Fortnox Future Earnings Per Share Growth

Risks

• Macroeconomic headwinds are posing challenges to Fortnox, which could potentially impact customer acquisition and revenue growth moving forward.
  
• The target of reaching 700,000 customers by 2025 seems unlikely given the current customer growth trend, which could affect long-term revenue expectations.
  
• The company faces competition in the market, and maintaining pricing strategies amid this could impact margins.
  
• Transaction-based revenues are becoming a larger part of the business, which introduces variability and potential risk to consistent revenue growth.
  
• The reduction in active subscription revenues due to changes in business models for certain products may impact overall earnings stability.

Valuation

• The analysts have a consensus price target of SEK 78.62 for Fortnox based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SEK 90.0, and the most bearish reporting a price target of just SEK 57.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be SEK 3.4 billion, earnings will come to SEK 1.4 billion, and it would be trading on a PE ratio of 41.3x, assuming you use a discount rate of 5.5%.
  
• Given the current share price of SEK 72.82, the analyst's price target of SEK 78.62 is 7.4% 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.