Gofore - Initiate coverage with buy

We initiate coverage of Gofore with a BUY rating and target price of EUR 9.2. We expect growth to continue strong in 2018-19E and profitability to remain at good levels.

Targeting above market growth rate in the IT-services sector

Gofore aims to grow faster than the company’s target IT-services market. Gofore’s long-term profitability target is to generate an EBITA-margin of 15%. We expect Gofore to have good possibilities to reach its profitability target during 2017E-2018E mainly supported by price increases and a good cost discipline due to a competitive personnel cost structure. Our EBITA-margin estimate for 2018E is 18.0 %. Historically, Gofore has grown faster than its main competitors and profitability has been above the competitor average in 2012-2016.

Recruitments in 2017 support good growth in 2018

Gofore’s personnel increased to 374 in 2017 from 196 in 2016. The increase came mostly from new recruitments and a smaller part from the acquisition of Leadin. The recruitments will support the continued growth in 2018E, with our sales growth estimates at 46.2 %. We also expect Gofore to continue expansion internationally, giving further support for continued good near-term growth. We expect sales growth to slow down going forward from 2018. The certain sector-wide difficulties in recruitments could put pressure on further slow-down of growth.

BUY with a target price of EUR 9.2

We initiate coverage of Gofore with a BUY-rating and target price of EUR 9.2. Our target price is based on our DCF-value and the peer multiples for 2018E. Gofore trades at a discount on earnings-based multiples for 2018E. Our target price values Gofore at 12.2x EV/EBIT 2018E.

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