Digital Transformation And ESG Will Expand Nordic Markets

Key Takeaways

• Successful acquisitions and focused hiring in strategic segments could drive outsized growth, elevate margins, and enable Knowit to outperform market expectations.
  
• Strong positioning in ESG compliance and digital transformation markets supports premium pricing, larger contracts, and a more resilient long-term revenue stream.
  
• Heavy reliance on Nordic markets, persistent margin pressures, automation-driven demand declines, intense competitive pricing, and integration risks from new-sector acquisitions threaten revenue stability and future profitability.

Catalysts

Operates as a consultancy company in Sweden and internationally.

• While analyst consensus expects incremental improvements in Solutions' utilization rates and margins, Knowit's current utilization is far below historic norms and could rebound sharply with market recovery, unlocking a step-change in revenue and EBITA margin well above consensus expectations.
  
• Analysts broadly foresee organic growth in Connectivity from pipeline investments, but this may understate the transformative potential, as Knowit is strategically recruiting in growth segments and could rapidly scale hiring and project volume, materially accelerating revenue growth and operating leverage when broader IT consulting demand returns.
  
• Knowit's recent acquisitions in defense and fintech position it to capture outsize share in markets benefiting from structural demand, regulatory spending, and high barriers to entry, setting the stage for sustained growth and superior margin contribution.
  
• With enterprise and public sector clients increasingly seeking bespoke cloud, data, and AI-driven digital transformation, Knowit's deep Nordic relationships and growing portfolio of tailored solutions position it to win larger, longer-duration contracts driving higher recurring and consulting revenue.
  
• Rising ESG regulatory complexity is pushing governments and corporations to invest in digital reporting and compliance solutions, a trend in which Knowit's capabilities and early positioning support a significant new addressable market and sustained premium billing rates, leading to a structurally stronger margin profile.

Knowit Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Knowit compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Knowit's revenue will grow by 6.7% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 1.3% today to 5.1% in 3 years time.
• The bullish analysts expect earnings to reach SEK 376.4 million (and earnings per share of SEK 14.95) by about September 2028, up from SEK 81.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 17.5x on those 2028 earnings, down from 36.2x today. This future PE is greater than the current PE for the GB IT industry at 15.0x.
• Analysts expect the number of shares outstanding to decline by 0.15% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.67%, as per the Simply Wall St company report.

Knowit Future Earnings Per Share Growth

Risks

• Knowit remains heavily exposed to the cyclical Nordic markets, and ongoing regional economic slowdowns in Denmark and Finland have resulted in weak demand, organizational restructuring, and continued revenue volatility, which makes future earnings less predictable.
  
• Chronic margin pressure is evident as the company cannot pass along sufficient price increases to offset rising salary inflation; this has led to a year-over-year decline in EBITA margin from 5.6 percent to 3.6 percent and could signal continued net margin deterioration if wage increases persist.
  
• The rise of automation and AI adoption is already reducing the need for traditional consultants, particularly in areas such as UX and low-end coding, where Knowit has seen significant decreases in headcount over the past two years; in the long term, this trend may suppress core service revenues as clients adopt more self-service solutions.
  
• Increased competition from both global IT service providers and local players has accelerated price pressure across nearly all business areas except select niches like defense, resulting in Knowit deliberately choosing not to lower prices to drive volume, but in tough markets, this cautious approach risks further decline in revenue per consultant if clients continue to delay investment decisions.
  
• Integration risks around acquisitions in new sectors such as fintech and defense may not result in the anticipated synergistic earnings uplift if Knowit fails to scale these businesses quickly or if market growth in these verticals slows, leading to disappointing returns on invested capital and potentially wasted acquisition spend.

Valuation

• The assumed bullish price target for Knowit is SEK195.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Knowit's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SEK195.0, and the most bearish reporting a price target of just SEK143.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be SEK7.3 billion, earnings will come to SEK376.4 million, and it would be trading on a PE ratio of 17.5x, assuming you use a discount rate of 7.7%.
• Given the current share price of SEK107.4, the bullish analyst price target of SEK195.0 is 44.9% 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.