US, Australia And Ghana Expansion Will Deliver Recurring TRaaS Value

Key Takeaways

• Expansion into U.S., Australia, and Ghana could boost revenue with a strong order intake and market growth.
  
• High-margin TRaaS business and strategic partnerships ensure stable, predictable revenues, enhancing net margins and future earnings.
  
• Declining order intake, currency volatility, and increased interest expenses may adversely impact Sensys Gatso Group's future revenue, net margins, and cash availability.

Catalysts

Designs, develops, owns, operates, markets, and sells traffic management and enforcement solutions to nations, cities, and fleet owners in Sweden and internationally.

• Sensys Gatso's expansion into new states in the U.S. and the opening of new markets in Australia and Ghana could significantly boost order intake and drive revenue growth.
  
• The continued growth of the recurring TRaaS business model, with a substantial portion (94%) of order intake labeled as recurring revenue, suggests a stable and predictable revenue stream that could enhance net margins.
  
• The company's strategic partnership in Saudi Arabia, marked by the first recurring revenue order, indicates potential future revenue from continued maintenance and system sales, positively impacting earnings.
  
• The projected continuation of high-margin recurring TRaaS revenue for the Dutch projects, as system sales transition to higher-margin services and maintenance, is likely to improve overall gross margins over time.
  
• Sensys Gatso's robust order book, with a remaining backlog exceeding SEK 1,000 million, provides visibility and stability for future revenue, supporting potential increases in earnings as these projects are executed.

Sensys Gatso Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Sensys Gatso Group's revenue will grow by 22.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.4% today to 10.2% in 3 years time.
• Analysts expect earnings to reach SEK 123.9 million (and earnings per share of SEK 5.96) by about May 2028, up from SEK -2.9 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 8.1x on those 2028 earnings, up from -169.2x today. This future PE is lower than the current PE for the GB Electronic industry at 26.0x.
• 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 7.83%, as per the Simply Wall St company report.

Sensys Gatso Group Future Earnings Per Share Growth

Risks

• The impact of global tariffs and weakened dollar against the Swedish krona and the euro could negatively affect profit margins due to translation effects, impacting overall earnings.
  
• The decline in order intake from SEK 380 million in Q1 2024 to SEK 192 million in Q1 2025 indicates potential challenges in securing new business, which could affect future revenue streams.
  
• Currency volatility and adverse exchange rate movements resulted in a negative impact of approximately SEK 6 million during Q1 2025, potentially affecting net margins.
  
• The increased interest expense, primarily from the Eurobond, rising to SEK 7 million from SEK 3 million, affects net margins and reduces available cash for investment or operational activities.
  
• The ongoing political and legislative challenges in Iowa could result in further revenue loss in the U.S. market, impacting overall revenue and EBITDA from managed services.

Valuation

• The analysts have a consensus price target of SEK72.75 for Sensys Gatso Group 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 SEK90.0, and the most bearish reporting a price target of just SEK55.5.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK1.2 billion, earnings will come to SEK123.9 million, and it would be trading on a PE ratio of 8.1x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of SEK42.9, the analyst price target of SEK72.75 is 41.0% 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.