Quantum Safe Security And EU Data Sovereignty Will Support Stronger SSH Outlook

Catalysts

About SSH Communications Security Oyj

SSH Communications Security Oyj provides cybersecurity software focused on privileged access management, encryption and secure communications for enterprises and public sector customers.

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

• The move toward modern privileged access models, including zero standing access and password free environments, aligns tightly with PrivX. PrivX is already architected for automated, keyless, cloud and hybrid access, so wider adoption of these models could support higher subscription revenue and annual recurring revenue.
• Growing regulatory and governmental focus on data sovereignty in Europe and parts of Asia, such as Italian PSN and broader public sector cloud programs, positions PrivX, NQX and SalaX as European controlled options. This can support multi year contracts and a larger base of deferred revenue.
• The deep partnership with Leonardo embeds SSH products into Made in Europe cybersecurity offerings, global cybersecurity centers and large frameworks like PSN and FREIA. This creates a recurring pipeline of projects that can support subscription sales and improve earnings visibility over time.
• Rising attention to quantum safe security, supported by SSH’s role in European and NIST related initiatives and its NQX post quantum ready network encryption, positions the company to benefit as critical infrastructure, defense and telecom customers start migration projects. This can lift revenues and support higher gross margins on specialized solutions.
• Consolidation of product management, engineering and go to market under a functional structure, combined with increased analyst recognition for PrivX, can make sales efforts more efficient and support improved net margins if subscription ARR and multiyear deals continue to build on the current base of €14.6m in deferred revenue.

Assumptions

How have these above catalysts been quantified?

• This narrative explores a more optimistic perspective on SSH Communications Security Oyj compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming SSH Communications Security Oyj's revenue will grow by 21.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -17.0% today to 20.2% in 3 years time.
• The bullish analysts expect earnings to reach €7.9 million (and earnings per share of €0.15) by about July 2029, up from -€3.7 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €-271.2 thousand.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 28.5x on those 2029 earnings, up from -28.4x today. This future PE is greater than the current PE for the GB Software industry at 18.5x.
• The bullish 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 7.45%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The pivot away from licenses toward subscriptions has left overall revenue flat and the most recent quarter showed a 21% decline in net sales compared to the prior year period. If subscription growth remains in the low double digits and large license deals do not reappear, revenue growth could stay muted and weigh on earnings.
• The more optimistic view depends heavily on the Leonardo partnership and a growing opportunity pipeline. Management acknowledges that only limited orders have materialized so far and that most potential revenue is expected later, so any delays, procurement setbacks or project cancellations could leave revenue and EBITDA below expectations.
• Expansion has required sizeable investment in people, with more than 20 hires across the U.S. and other regions and over 40% of resourcing spend going into R&D. If new sales do not scale fast enough, higher operating costs could keep EBIT in loss making territory and limit improvement in net margins.
• Products such as NQX and SalaX still serve relatively narrow markets, and NQX growth has been described as slower than anticipated. If regulatory drivers or quantum safe adoption progress more slowly than management expects, related revenue streams and overall earnings could remain smaller than assumed in the bullish case.

Valuation

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

• The assumed bullish price target for SSH Communications Security Oyj is €2.7, which represents up to two standard deviations above the consensus price target of €2.3. This valuation is based on what can be assumed as the expectations of SSH Communications Security Oyj's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €2.7, and the most bearish reporting a price target of just €1.9.
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be €38.9 million, earnings will come to €7.9 million, and it would be trading on a PE ratio of 28.5x, assuming you use a discount rate of 7.5%.
• Given the current share price of €1.94, the analyst price target of €2.7 is 28.1% 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.