Subscription Conversion And Expert Services Improvements Will Secure Resilient Performance

Key Takeaways

• Strong growth in subscription revenues and predictable models are expected to enhance future margins and drive revenue growth.
  
• Diversified revenue across geographies and sectors, coupled with strategic investments, mitigates risk and supports market expansion.
  
• Macroeconomic uncertainty and challenges with customer conversion to subscription models may hinder Lime Technologies' revenue growth and impact earnings and market share.

Catalysts

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

• Lime Technologies is experiencing strong growth in subscription revenues, which aligns with their strategic focus and is expected to drive future revenue growth.
  
• The shift towards a higher proportion of recurring revenue through subscriptions from service agreements is expected to provide a more predictable revenue model and potentially enhance net margins over time.
  
• Efforts to improve the implementation of Expert Services with new tools and techniques aim to enhance operational efficiency, likely contributing to better earnings and potentially higher net margins.
  
• Continued investments in sales, marketing, and employee development are expected to strengthen market presence and product offerings, driving future revenue and earnings growth.
  
• Lime's low customer concentration and successful geographic and vertical expansion reduce risk and provide opportunities for diversified revenue growth across multiple markets.

Lime Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Lime Technologies's revenue will grow by 13.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.3% today to 19.0% in 3 years time.
• Analysts expect earnings to reach SEK 194.4 million (and earnings per share of SEK 14.64) by about May 2028, up from SEK 94.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as SEK166.3 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 31.3x on those 2028 earnings, down from 55.2x today. This future PE is lower than the current PE for the SE Software industry at 33.7x.
• 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 6.32%, as per the Simply Wall St company report.

Lime Technologies Future Earnings Per Share Growth

Risks

• The ongoing macroeconomic uncertainty, along with slower decision-making processes among existing customers, may hinder revenue growth, particularly in the Expert Services segment, which relies heavily on sales to existing customers. This could impact both revenue and net margins.
  
• The significant decrease in service agreement revenues (31%) as Lime transitions customers to subscription-based models poses a risk if customers do not successfully convert, potentially leading to short-term revenue declines.
  
• The cyberattack on Lime's SportAdmin and the subsequent publishing of sensitive data could lead to reputational damage, loss of customers, or potential fines, which may adversely affect revenue and net profits.
  
• The competitive landscape, especially in tougher markets like Germany and within sectors such as automotive, may slow down expansion efforts and pressure earnings and market share.
  
• The company's financial targets, like achieving 18% to 20% revenue growth, depend on strategic acquisitions and strong organic growth, which may not materialize under current cautious market conditions, thus affecting revenue and earnings growth forecasts.

Valuation

• The analysts have a consensus price target of SEK389.2 for Lime Technologies 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 SEK1.0 billion, earnings will come to SEK194.4 million, and it would be trading on a PE ratio of 31.3x, assuming you use a discount rate of 6.3%.
  
• Given the current share price of SEK390.5, the analyst price target of SEK389.2 is 0.3% lower. 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.