Lifecycle Services And Windows Upgrades Will Drive A Stronger Earnings Recovery Ahead

Catalysts

About Dustin Group

Dustin Group is a leading Nordic and Benelux IT reseller and solutions provider for large corporate, public sector, and small and medium sized business customers.

What are the underlying business or industry changes driving this perspective?

• The ongoing Windows 10 to 11 migration is already driving renewed hardware demand among larger organizations and should gradually extend into the SMB base, supporting a sustained recovery in volumes and revenue as smaller customers eventually accelerate replacements.
• Rising adoption of lifecycle services, including takeback and refurbishing of returned equipment, is improving margin mix in LCP and should scale with each new device refresh cycle, providing a structural tailwind to gross margin and EBITDA.
• The completed SEK 200 million cost efficiency program, including a 10% FTE reduction and office consolidation, establishes a leaner operating model so that even modest top line growth can translate into disproportionately higher EBITA margin and earnings.
• The shift to a unified European offering with more standardized services and private label products deepens vendor relationships and enables better purchasing terms, which can ease pricing pressure over time and support higher net margins as volumes normalize.
• Strengthening public sector IT budgets, notably in Nordic markets such as Finland, combined with increasing security and infrastructure needs in areas like police and military, should underpin resilient demand that stabilizes group revenue and improves earnings quality across cycles.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Dustin Group's revenue will grow by 4.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from -12.9% today to 1.3% in 3 years time.
• Analysts expect earnings to reach SEK 293.5 million (and earnings per share of SEK 0.21) by about December 2028, up from SEK -2.6 billion today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 15.7x on those 2028 earnings, up from -0.9x today. This future PE is lower than the current PE for the GB Electronic industry at 26.6x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.68%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The recovery is currently driven by large corporate and public customers upgrading for the Windows 10 to 11 transition while small and medium businesses remain cautious. If SMB demand stays structurally weaker than in past cycles, Dustin could face a slower, less diversified top line recovery, which would weigh on revenue growth.
• Intense and prolonged price competition in the Netherlands and to some extent Denmark, combined with a higher mix of low margin public sector contracts, could structurally cap or compress gross margins even as volumes recover. This would limit the improvement in EBITA margin and overall earnings.
• Elevated leverage at 4.3 times and high inventory levels above target, particularly in Benelux customer specific stock, create balance sheet risk in a slow or volatile market. If demand disappoints or working capital does not normalize as planned, interest costs and potential write downs could pressure net profit.
• The current efficiency program has largely relied on headcount and office reductions to lift profitability. If future growth in lifecycle services, takeback and private label offerings does not scale as expected, the business may struggle to reach its long term margin targets, limiting earnings expansion.
• The present upturn in certain Nordic public sector budgets, notably in areas like police and military in Finland, may not be sustained over the longer term. If these cyclical boosts fade without being replaced by broader economic or technology-driven demand such as AI PCs, Dustin could see renewed revenue stagnation and margin pressure.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of SEK2.1 for Dustin Group based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be SEK23.2 billion, earnings will come to SEK293.5 million, and it would be trading on a PE ratio of 15.7x, assuming you use a discount rate of 9.7%.
  
• Given the current share price of SEK1.8, the analyst price target of SEK2.1 is 14.4% 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.