Integration Of Payment Services And Operational Efficiency Will Shape Future In Swedish Software Market

Key Takeaways

• Enhancing product offerings and integrating payment services aim to drive revenue and open new earnings streams through higher ARPC and transaction services.
  
• Organizational changes focus on scalability and efficiency, with potential improvement in net margins from a unified platform and operational efficiencies.
  
• Diversified challenges, including market maturity, economic factors, and strategic changes, could constrain Fortnox's future revenue growth and impact financial stability.

Catalysts

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

• Fortnox is focusing heavily on increasing average revenue per customer (ARPC) by enhancing product offerings and user experience, which is expected to drive revenue growth.
  
• The company is prioritizing integration of payment and financial services into core business flows, potentially opening new revenue streams from transaction and payment services, thereby positively impacting earnings.
  
• Price adjustments to align with product value are being implemented, anticipated to contribute to revenue growth as these adjustments become effective for new and existing customers.
  
• Fortnox is expanding its package offerings and enhancing services to increase customer usage and engagement, which could enhance revenue and margins as users extract more value from their subscriptions.
  
• New organizational changes are aimed at improving scalability and efficiency by emphasizing a unified platform experience, which might lead to improved net margins through operational efficiencies and integrated services.

Fortnox Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Fortnox's revenue will grow by 21.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 34.7% today to 39.7% in 3 years time.
• Analysts expect earnings to reach SEK 1.5 billion (and earnings per share of SEK 2.43) by about March 2028, up from SEK 710.0 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 38.3x on those 2028 earnings, down from 54.7x today. This future PE is greater than the current PE for the SE Software industry at 35.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.98%, as per the Simply Wall St company report.

Fortnox Future Earnings Per Share Growth

Risks

• The company experienced slower customer growth compared to previous quarters, which could indicate a maturing market and potentially limit future revenue growth.
  
• The divestment of Offerta affected subscription-based revenue growth, impacting the consistency and predictability of revenue streams.
  
• The 8% price hike may not be sustained in the future if customer perception of value does not keep pace, which could impact revenue growth from price increases.
  
• The reorganization and focus on core business flows may distract from growth initiatives or lead to inefficiencies in selling activities, potentially affecting revenue growth.
  
• Economic factors in Sweden, such as lower transaction volumes and the slow return of economic activity, could negatively impact Fortnox's revenue and net margins if macroeconomic conditions do not improve.

Valuation

• The analysts have a consensus price target of SEK77.556 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 SEK95.0, and the most bearish reporting a price target of just SEK40.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK3.7 billion, earnings will come to SEK1.5 billion, and it would be trading on a PE ratio of 38.3x, assuming you use a discount rate of 6.0%.
• Given the current share price of SEK63.62, the analyst price target of SEK77.56 is 18.0% 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.