Lasernet's New Offerings And SaaS Focus Will Strengthen Future Earnings Stability

Key Takeaways

• Transition to SaaS and cost calibration align with strategies for predictable revenue, improved margins, and long-term growth through operational efficiencies.
  
• New product functionalities and enhanced cybersecurity measures enhance revenue potential, infrastructure resilience, and operational stability, supporting sustained earnings growth.
  
• The transition to recurring revenue and partner-based models, alongside cybersecurity and competitive challenges, may result in short-term financial impacts and increased operating expenses.

Catalysts

Provides software and consulting services for capturing, managing, and distributing information in Sweden, Denmark, Germany, the United Kingdom, and the United States.

• The company is making strong progress in increasing its recurring SaaS revenues, with a 27% growth, which aligns with their strategy of transitioning to more predictable and stable revenue streams. This is likely to positively impact revenue and earnings consistency.
  
• Efforts to calibrate costs by reducing headcount in certain areas and shifting competencies are expected to yield more profitable growth, improving net margins in the long term by optimizing operational efficiencies.
  
• The introduction of new functionalities in the public business area aims to reuse existing capabilities and reduce maintenance costs. This strategic product development should bolster revenues and net margins as it allows more resources to be allocated towards new growth initiatives.
  
• Lasernet's packaging overhaul and the introduction of Essentials aim to streamline pricing discussions and reduce uncertainties, potentially driving higher deal sizes and revenue without significantly increasing costs, thus improving net margins and earnings.
  
• The ongoing focus on cybersecurity and organizational resilience, following a cyber attack, aims to strengthen the company's infrastructure and reduce future risk exposure. This could translate into better operational stability and potentially lower costs related to such incidents, positively impacting earnings stability.

Formpipe Software Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Formpipe Software's revenue will grow by 9.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.2% today to 16.7% in 3 years time.
• Analysts expect earnings to reach SEK 115.6 million (and earnings per share of SEK 2.13) by about April 2028, up from SEK 17.1 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 19.0x on those 2028 earnings, down from 83.5x today. This future PE is lower than the current PE for the GB Software industry at 30.4x.
• Analysts expect the number of shares outstanding to grow by 0.07% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.18%, as per the Simply Wall St company report.

Formpipe Software Future Earnings Per Share Growth

Risks

• The company's shift from licensing to recurring revenue streams could cause short-term negative impacts on net revenue and EBIT due to the decline in licensing, which might not be immediately offset by SaaS growth.
  
• One-off costs related to a recent cyber incident amounted to SEK 4.7 million, which negatively affects EBIT and highlights vulnerabilities in the company's cybersecurity infrastructure.
  
• Reductions in headcount and restructuring efforts in the Lasernet business, including changes in competencies, may lead to increased operating expenses and transitional challenges impacting net margins.
  
• The deliberate shift of some delivery work from an internal to a partner-based model might not yield immediate revenue benefits, as indicated by professional services revenue fluctuations, potentially impacting overall earnings.
  
• Rising competition from low-end market entrants, especially in document and output management, could lead to pricing pressures and affect revenue growth in the company's high-end product segments.

Valuation

• The analysts have a consensus price target of SEK34.0 for Formpipe Software 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 SEK690.6 million, earnings will come to SEK115.6 million, and it would be trading on a PE ratio of 19.0x, assuming you use a discount rate of 6.2%.
• Given the current share price of SEK26.3, the analyst price target of SEK34.0 is 22.6% 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.