Software Sales And International Expansion Will Define Our Future

Key Takeaways

• Shift towards software sales is anticipated to positively impact net margins due to higher margins compared to hardware sales.
  
• Expansion in EMEA and APAC regions, along with strong reseller interest, is expected to drive future revenue growth.
  
• Revenue stagnation and high consulting costs, coupled with foreign currency risks and U.S. market uncertainty, could impact net earnings despite positive customer feedback.

Catalysts

Provides forensic technology for mobile device examination and analysis in Sweden and internationally.

• The company is focusing more on software sales, which typically have higher margins compared to hardware sales. This shift is expected to positively impact net margins in the future.
  
• The XRY Pro product is seeing continued growth, particularly in EMEA, with potential to boost revenue growth as customers upgrade to what is considered the best product in the market.
  
• With a strengthened balance sheet, the company is positioned to continue investing in product innovations, which could lead to future revenue growth and improved earnings.
  
• There is an expansion opportunity in the APAC region, which is expected to contribute to revenue growth despite last year's exceptional large deal in India.
  
• Increased interest from resellers and partners, alongside heightened marketing efforts, is anticipated to expand market reach and drive revenue growth.

Micro Systemation Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Micro Systemation's revenue will grow by 8.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.2% today to 11.3% in 3 years time.
• Analysts expect earnings to reach SEK 59.0 million (and earnings per share of SEK 3.08) by about May 2028, up from SEK 37.4 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 23.8x on those 2028 earnings, down from 24.5x today. This future PE is lower than the current PE for the GB Software industry at 33.7x.
• Analysts expect the number of shares outstanding to decline by 0.37% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.33%, as per the Simply Wall St company report.

Micro Systemation Future Earnings Per Share Growth

Risks

• Despite positive customer feedback, the close similarity of net sales to the previous year indicates potential stagnation in revenue growth, especially considering the absence of large deals like last year's in India.
  
• The U.S. market faces uncertainty due to administrative confusion and budget cuts, which could delay projects and impact anticipated revenues.
  
• A high percentage of revenue is affected by foreign currency exchange, with 95% of revenue being foreign and potential exposure to currency risks that could affect net earnings.
  
• Consulting costs were significantly higher this quarter, impacting operating expenses and potentially reducing net margins.
  
• Continued investments in R&D and marketing, while beneficial long-term, may increase operating expenses in the short term, potentially affecting net earnings.

Valuation

• The analysts have a consensus price target of SEK65.0 for Micro Systemation 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 SEK522.0 million, earnings will come to SEK59.0 million, and it would be trading on a PE ratio of 23.8x, assuming you use a discount rate of 6.3%.
  
• Given the current share price of SEK49.7, the analyst price target of SEK65.0 is 23.5% 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.