International Expansion And SportAdmin Development Will Strengthen Future Prospects

Key Takeaways

• Expansion into new markets like the Netherlands and Germany is expected to drive future revenue growth and capture a larger customer base.
  
• Increasing recurring revenue and strategic investments in products and personnel enhance stability, support growth, and improve customer retention.
  
• The focus on growth and investments, coupled with slow deal closures and rising operating expenses, could lead to revenue volatility and delayed profitability improvements.

Catalysts

Provides software as a service (SaaS) based customer relationship management (CRM) solutions in the Nordic region.

• Lime Technologies is expanding its geographical footprint, having entered new markets such as the Netherlands and Germany since 2020. This expanded market presence can drive future revenue growth as the company captures a larger customer base.
  
• Lime Technologies is increasing its share of recurring revenue, which currently stands at 64%. This transition to a more predictable revenue model can positively impact revenue stability and provide a solid foundation for long-term growth.
  
• The company is accelerating its investment in sales, marketing, product development, and recruitment, as evidenced by the onboarding of 30 new employees in August. These investments are expected to support future revenue and earnings growth by enhancing the company's operational capabilities and market reach.
  
• Lime Technologies is working on the internationalization of SportAdmin, focusing on product and market research in regions like the UK and Germany. Successfully entering these markets and adapting products can drive new revenue streams.
  
• The development of new product features, such as the mobile app release, is expected to attract both new and existing customers, potentially boosting revenue and improving net margins due to higher customer retention and satisfaction.

Lime Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Lime Technologies's revenue will grow by 15.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.6% today to 17.8% in 3 years time.
• Analysts expect earnings to reach SEK 180.6 million (and earnings per share of SEK 13.6) by about February 2028, up from SEK 89.2 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 30.7x on those 2028 earnings, down from 49.0x today. This future PE is lower than the current PE for the SE Software industry at 39.9x.
• 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 5.75%, as per the Simply Wall St company report.

Lime Technologies Future Earnings Per Share Growth

Risks

• The slower-than-expected pace in closing deals, particularly in the months of August and early September, could indicate potential revenue volatility and impact sales growth projections.
  
• The low growth rate in the Rest of Europe segment, particularly the unsatisfactory performance of Expert Services, suggests challenges in achieving international expansion targets, which could impact future revenue and market share.
  
• The decision to prioritize growth over profitability, as evidenced by investments in sales, marketing, staffing, and product development, could pressure net margins and delay profitability improvements.
  
• Increased operating expenses, driven by personnel costs and investments in SportAdmin, could negatively affect earnings and profit margins if revenue growth does not keep pace with rising costs.
  
• The acquisition of SportAdmin with its lower profit margins poses integration and growth challenges, potentially impacting overall net margins and profitability if not successfully executed as anticipated.

Valuation

• The analysts have a consensus price target of SEK360.5 for Lime Technologies 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 SEK407.0, and the most bearish reporting a price target of just SEK340.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK1.0 billion, earnings will come to SEK180.6 million, and it would be trading on a PE ratio of 30.7x, assuming you use a discount rate of 5.8%.
  
• Given the current share price of SEK329.0, the analyst price target of SEK360.5 is 8.7% 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.