Gofore - Continued profitable growth

Name: Evli
Price range: $

Gofore has a proven track-record of profitable growth, having grown and seeking to grow faster than its target market. Supported by M&A activity and high public sector exposure, growth is in our view set to continue in the double-digits, with margins not looking to be under any major threat. We adjust our target price to EUR 12.1 (8.6) and retain our HOLD-rating.

Seeking above target market growth
Gofore is one of the fastest-growing yet profitable public IT-services companies in Finland, seeking to profile itself more towards a digitalization consultancy company. Gofore aims to grow faster than the target market, new digitalization services, while at the same time seeking to generate an EBITA-margin of 15%. Gofore has a solid track-record, having achieved a net sales CAGR of 47.5% between 2014-2019, while adj. EBITA-margins have remained well in double-digit figures. Relative organic growth has slowed down from recent peak years, but M&A activity supports continued double-digit growth.

Continued good growth and profitability outlook
Aided by the acquisition of Qentinel Finland we expect Gofore to grow 14.5% in 2021. The uncertainty brought by the coronavirus pandemic poses some risks to customer activity, but the high share of revenue from public sector clients has so far mitigated a lot of the potential impact, as private sector demand has during the year been more affected. Apart from a potential impact of the recent increased share of subcontracting, we do not see significant risks to margins going forward and expect a 13.8% average adj. EBITA-margin during 2020E-2022E, slightly below the target 15%.

HOLD with a target price of EUR 12.1 (8.6)
We value Gofore at 17.5x 2021 adj. P/E (excludes goodwill amortization), implying a 26% premium to our peer group and a 34% premium to the finnish peers. We adjust our target price to EUR 12.1 (8.6) and retain our HOLD-rating.

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