Global Expansion And AI Will Fuel National Infrastructure Projects

Key Takeaways

• Global expansion and secured contracts indicate potential for enhanced revenue and earnings growth from long-term projects and recurring streams.
  
• Workforce expansion for large-scale, AI-focused projects suggests significant operational scale-up and improved net margins.
  
• Heavy reliance on Egyptian revenue exposes vulnerability to geopolitical risks and economic challenges, potentially straining profitability, cash flow, and timely revenue recognition.

Catalysts

Provides solutions in security, network, business intelligence, and Internet of Things (IoT) technology in the Asia Pacific region, the Americas, Cayman Islands, and internationally.

• Gorilla Technology Group has successfully transformed its business model by doubling down on global expansion, stabilizing operations, and unlocking national-level opportunities, which is expected to positively impact revenue and earnings growth.
  
• The company has secured nearly $2 billion in signed contracts and is working on a $4.6 billion pipeline, including government-backed frameworks with long-term commercial scope, which should significantly boost future revenues.
  
• There's a shift to long-term, high-margin recurring revenue streams from sovereign level infrastructure projects, which is expected to enhance net margins.
  
• Gorilla is expanding its workforce substantially to meet the needs of large-scale projects, indicating a potential scale-up in operations and associated revenue growth.
  
• The company's focus on providing comprehensive, purpose-built AI solutions for national infrastructure projects positions it well for long-term growth, which is likely to increase net margins and earnings.

Gorilla Technology Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Gorilla Technology Group's revenue will grow by 21.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 28.3% today to 12.7% in 3 years time.
• Analysts expect earnings to reach $18.1 million (and earnings per share of $1.29) by about April 2028, down from $22.4 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 39.6x on those 2028 earnings, up from 15.8x today. This future PE is greater than the current PE for the US Software industry at 29.6x.
• 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 8.79%, as per the Simply Wall St company report.

Gorilla Technology Group Future Earnings Per Share Growth

Risks

• The company has a substantial portion of its revenue coming from Egypt, which makes it vulnerable to geopolitical and economic instability in the region, thus potentially impacting future revenue and profitability.
  
• The company's gross profit margin has declined due to changes in the mix, and they expect it to remain around the current level, indicating potential challenges in maintaining profitability at scale.
  
• There is a significant foreign exchange loss attributable to the devaluation in Egypt, which could affect net margins if similar devaluations occur in the future.
  
• The company has faced challenges with unbilled revenue and a significant operational cash outflow, which could strain liquidity if cash collections do not improve as expected, impacting cash flow and financial stability.
  
• There are concerns about the time lag between signing contracts and recognizing revenue, as large projects require extensive upfront work, which could lead to delays in revenue recognition and impact short-term financial performance.

Valuation

• The analysts have a consensus price target of $31.0 for Gorilla Technology 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 $35.0, and the most bearish reporting a price target of just $27.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $142.7 million, earnings will come to $18.1 million, and it would be trading on a PE ratio of 39.6x, assuming you use a discount rate of 8.8%.
• Given the current share price of $19.12, the analyst price target of $31.0 is 38.3% 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.