Digital Transformation In Italy And Europe Will Accelerate Success

Key Takeaways

• Strategic focus on digital, AI, and cybersecurity services positions SeSa for long-term margin expansion and stable recurring revenue growth amid evolving market demands.
  
• Emphasis on value-added services, operational efficiency, and selective acquisitions supports profitability, cash generation, and resilience against increased competition.
  
• Margin compression, M&A reliance, declining financial flexibility, rising competition, and escalating personnel costs pose significant challenges to SeSa's profitability and growth sustainability.

Catalysts

Distributes value-added information technology (IT) software and technologies in Italy and internationally.

• Significant ongoing investments in AI, automation, digital platforms, and cybersecurity position SeSa to benefit from accelerating digital transformation in Italy and Europe, supporting future revenue growth and margin expansion as digital adoption deepens across all sectors.
  
• Rising demand for secure, remote, and hybrid work solutions-combined with heightened regulatory requirements around cybersecurity (e.g., NIS2 directive)-are expected to drive sustained growth in SeSa's managed services, software integration, and security offerings, fueling higher recurring revenues and improving earnings visibility.
  
• The company's Industrial Plan for FY 2026-2027 prioritizes organic growth, cash generation, and group simplification, ensuring greater operating efficiency and margin improvement, which should directly support EBITDA and net profit expansion.
  
• Recent double-digit growth in higher-margin Business Services and Digital Green segments demonstrates successful adaptation to secular shifts (energy transition, digitalization in financial services), creating a long runway for both revenue and profitability acceleration.
  
• The strategic shift towards value-added, higher-margin services, selective M&A, and recurring digital platforms is expected to increase both net margins and cash flows, especially as SeSa capitalizes on industry moves to Everything-as-a-Service and can leverage economies of scale against potential price competition.

SeSa Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SeSa's revenue will grow by 5.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.9% today to 2.5% in 3 years time.
• Analysts expect earnings to reach €96.5 million (and earnings per share of €6.24) by about August 2028, up from €62.2 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 25.0x on those 2028 earnings, up from 17.1x today. This future PE is greater than the current PE for the GB Electronic industry at 14.1x.
• Analysts expect the number of shares outstanding to decline by 0.54% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.56%, as per the Simply Wall St company report.

SeSa Future Earnings Per Share Growth

Risks

• Slower-than-expected organic growth and ongoing margin compression in the Software and System Integration (SSI) and ICT Value Added Solutions (VAS) segments-with SSI EBITDA margins declining from ~12% to 10.8% in FY '25, and ICT VAS revenues down 3.4%-raise concerns about sustainable profitability and potential challenges in adapting to the industry's shift towards SaaS/cloud models, which could impact future net margins and earnings.
  
• Heavy reliance on M&A-driven growth over prior years (66% of 'Business Services, Green and SSI' growth in FY '25 was M&A-driven) raises integration risks; the new more selective M&A strategy and focus on organic growth may not fully offset potential lost momentum if organic performance underwhelms, threatening revenue growth targets and operating leverage.
  
• Declining net financial position-with net cash excluding IFRS liabilities dropping from €211 million to €158 million, and a negative net financial position of €74 million including liabilities-reflects high recent investments and pressure from buy-backs/dividends, which could limit future financial flexibility for growth initiatives or increase financial expense, adversely affecting net earnings.
  
• Intensifying industry competition, especially from large technology vendors enabling direct-to-customer channels and e-commerce platforms, could erode SeSa's intermediary value proposition and compress industry margins, causing revenue and profitability headwinds in legacy distribution businesses.
  
• Wage inflation and talent scarcity in the European tech market, compounded by SeSa's 15% year-on-year increase in headcount and planned moderate further hiring, may drive up personnel costs, putting sustained pressure on operating costs and net margins over the long term.

Valuation

• The analysts have a consensus price target of €109.7 for SeSa 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 €129.1, and the most bearish reporting a price target of just €80.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €3.8 billion, earnings will come to €96.5 million, and it would be trading on a PE ratio of 25.0x, assuming you use a discount rate of 13.6%.
• Given the current share price of €69.3, the analyst price target of €109.7 is 36.8% 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.