A growth driven digitalisation specialist
Gofore continued to grow profitably and despite some minor bumps on the road EBITA was quite as expected at EUR 6.8m (Evli EUR 7.0m). We continue to expect above 30% in 2021. We retain our HOLD-rating and target price of EUR 21.
Continued profitable growth in H1
Gofore reported its H1 results, continuing on a track of profitable growth. Revenue grew 38 % to EUR 51.7m driven mainly by inorganic growth, as organic growth fell short of the around 10% long-term target. Gofore’s EBITA and adj. EBITA in H1 amounted to EUR 6.8m and EUR 6.9m respectively, rather in line with our estimates (Evli EUR 7.0m/7.2m). Billing rates were slightly weaker mid-H1 due to the transition between agreement periods with one of Gofore’s largest customers but improved towards the end of the first half of the year. Gofore also experienced an increase in personnel turnover during H1. Profitability in H1 was still at a good level although below the 15% EBITA margin target.
Some uncertainty from increased personnel turnover
We have made smaller downward revisions to our 2021 profitability estimates while our revenue estimate remains quite intact at over 30% y/y growth driven mainly by inorganic growth. Some uncertainty is present from the sector-wide increase in personnel turnover, as the wariness of switching jobs during the pandemic has started to decrease. Gofore is in our view still well positioned in the labour-market as an employer. Although an increase in turnover may be unavoidable, Gofore should still fare well in new recruitments in the rather challenging environment. Short-term this may still cause some pressure on growth and margins.
HOLD-rating with a target price of EUR 21
In our view the H1 report didn’t really change much in Gofore’s investment case and the noted increase in employee turnover is something we currently don’t view as a major risk but will keep an eye on. We reiterate our target price of EUR 21 and retain our HOLD-rating.
Gofore’s EBITA/adj. EBITA of EUR 6.8m/6.9m in H1 were rather in line with expectations (Evli 7.0m/7.2m). Revenue grew 38.3% to EUR 51.7m in H1 (pre-announced). Revenue and adj. EBITA in 2021 are expected to grow compared with 2020.
Gofore’s Q1 showed slight weakness y/y due to working day differences and lower billing rates due to changes in a customer’s deliveries, but overall progress remains good. With the recent share price rally, we lower our rating to HOLD (BUY), with a TP of EUR 21.0.
Slight weakness in relative profitability
Gofore reported Q1/21 net sales of EUR 25.2m (Evli EUR 23.5m), for a growth rate of 34.1% y/y, and adj. EBITA of EUR 3.5m (Evli 3.7m). The relative profitability was slightly lower than expected and lower than in the comparison period, with an adj. EBITA-% of 13.9% (Q1/20: 16.8%). This was due to the lower number of working days and changes in project deliveries relating to Gofore’s largest customer, which led to a lower than expected billing rate. On a general level, apart from the slightly weaker relative profitability, the Q1 report did not contain any noteworthy negatives, and customer demand appears to have continued to be at a healthy level.
Growth pace still set to continue strong
We expect net sales of EUR 103.2m and an adj. EBITA of EUR 14.3m in 2021, a y/y sales and adj. EBITA growth of 32.4% and 31.0% respectively. According to Gofore’s guidance the net sales and adj. EBITA are expected to grow in 2021 compared to 2020. Growth is mainly driven by the Qentinel Finland acquisition in September 2020 and the CCEA + Celkee acquisition in March 2021. Furthermore, we expect for Gofore to continue on its track of good organic growth and aided by a good order intake achieve double-digit organic growth figures. With the slight weakness in relative profitability in Q1 and potential further weakness in Q2 from the project delivery changes of Gofore’s largest customer we expect full-year margins to decrease slightly compared with 2020.
HOLD (BUY) with a TP or EUR 21.0
Gofore’s share price has rallied some 20% since our previous update in March. With our estimates and the investment case overall intact we retain our target price of EUR 21.0. With valuation pushing clearly above 30x 2021 P/E and ahead of peers we downgrade our rating to HOLD (BUY).
Gofore’s H2 results showed little signs of weakness and with the more recent acquisitions the growth pace is set to continue well into double-digit figures. We upgrade our rating to BUY (HOLD) with a target price of EUR 21.0 (16.0).
Strong organic growth in 2020 despite pandemic
Gofore reported H2 revenue of EUR 40.6m (pre-announced) and EBITA and adj. EBITA figures of EUR 5.0m/5.1m respectively (Evli EUR 4.8m/5.5m). The BoD proposes a dividend distribution of EUR 0.24 per share (Evli EUR 0.25). In 2021 Gofore expects that its revenue and adj. EBITA in 2021 will grow compared to 2020. Despite the pandemic, Gofore posted solid organic growth figures of 15.5% for the full-year 2020 and total growth of 21.7%.
Rapid growth to continue
Gofore completed the acquisition of change execution consulting specialist CCEA and its fully owned subsidiary Celkee, expected to have a revenue impact of approx. EUR 6m in 2021. With the newest acquisition and the Qentinel Finland acquisition in the latter half of 2020 as well as expectations of around 10% organic growth we now expect revenue growth of 28% in 2021, rapidly closing in on over EUR 100m annual sales. We expect adj. EBITA margins to remain relatively flat near the 15% adj. EBITA-% target, with the low scalability of the business model providing little further upside. Gofore had a healthy cash position of EUR 21m at the end of 2020, supporting potential further acquisitions. Overall demand appears to have remained at good levels after the initial dip in the early stages of the pandemic and the outlook remains favourable.
BUY (HOLD) with a target price of EUR 21.0 (16.0)
On our revised estimates we adjust our target price EUR 21.0 (16.0), valuing Gofore at approx. 30x 2021 P/E, and raise our rating to BUY (HOLD). Compared to peers, near-term valuation is quite stretched, but the solid performance and expectations of rapid growth along with further M&A potential certainly merits a higher valuation.
Gofore’s EBITA/adj. EBITA of EUR 5.0m/5.1m in H2 were somewhat in line with expectations (Evli 4.8m/5.5m). Revenue grew 32.5% to EUR 40.6m in H2 (pre-announced). Revenue and adj. EBITA in 2021 are expected to grow compared with 2020. Gofore’s BoD proposes a dividend of EUR 0.24 per share (Evli EUR 0.25).
Gofore held its Capital Markets Day on January 14th, which for us acted mainly as a confidence boost, as updated financial targets and strategy had been communicated earlier. The company remains well on its track of profitable and rapid growth, with little obstacles to be seen. We retain our HOLD-rating and target price of EUR 16.0.
CMD mostly a confidence booster for us
Gofore held its Capital Markets Day on January 14th. With the company having updated its strategy and long-term financial targets earlier, new information in that regard was limited. From a financial perspective, focus in our view was rather clearly on the commitment to continued rapid and profitable organic and inorganic growth, with an increased focus on international operations and the usage of subcontracting. The CMD increased our confidence in Gofore’s international growth capabilities, which arguably has been one of the company’s more challenging areas, as well as Gofore’s overall delivery capabilities.
Growth target well in sight
Gofore also published its December net sales figures, with full-year net sales at EUR 78.0m, slightly beating our EUR 77.3m estimate. We have made slight adjustments to our estimates but no major changes overall. Based on the inorganic growth from the Qentinel Finland acquisition along with an organic uplift we expect growth of 18.5% in 2021, with any potential acquisitions quite easily being able to push growth over the 20% target. We expect relatively flat margin development going forward given the already excellent levels and limited scalability.
HOLD with a target price of EUR 16.0
Current valuation remains clearly above peers, which to a larger extent is warranted given the solid growth and profitability, which in the long-term could provide upside potential, while near-term potential remains rather limited. Our target price of EUR 16.0 implies a 2021 P/E of 27.0x. We retain our HOLD-rating.
Gofore announced its updated strategy and new long-term financial targets, seeking over 20% annual growth and a 15% adj. EBITA-margin. With continued good signs of rapid profitable growth and recent solid order intake we adjust our TP to EUR 16.0 (12.1) and retain our HOLD-rating.
Seeking above 20% long-term growth
Gofore announced its updated strategy and gave and gave new long-term financial targets. Gofore will continue to seek to grow profitably both domestically and internationally while creating a positive impact on the society, customers and employees. Approximately half of the growth in the coming years is targeted through acquisitions and the aim for the international business is to achieve a similar growth pace as the Group. The long-term aim is to achieve above 20% annual net sales growth. The target for profitability is an adjusted EBITA-margin of 15%. Gofore also announced that it aims to transfer to the Nasdaq Helsinki Main Market during the first quarter of 2021.
Very promising signs from recent order intake
The new growth target is clearly above our previous expectations, with the organic growth having become more challenging in previous years for the market as a whole. Gofore has also grown to a size at which maintaining the relative growth pace should become more challenging. The order intake during the last quarter of 2020 has however been extremely promising, with the potential value of new orders corresponding to around 2019 net sales. Gofore is also in a solid position to continue inorganic growth, with a clear net cash position also after the Qentinel Finland acquisition. We have raised our growth estimates, expecting ~17% annual growth during 2021-2022 (prev. ~12%), and made adjustments with the transition to IFRS.
HOLD with a target price of EUR 16.0 (12.1)
On current multiples valuation is certainly not cheap, but with notable signs of continued rapid and profitable growth there is certainly merit in staying on for the ride. We adjust our TP to EUR 16.0 (12.1) and retain our HOLD-rating.
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.
Gofore’s H1 report did not provide any larger surprises. With net sales pre-announced at EUR 37.4m adj. EBITA of EUR 5.8m was quite in line with our estimates (Evli EUR 5.5m). The large share of public sector clients (73.5% of H1 net sales) is proving beneficial under these circumstances and the direct impact of COVID-19 has been rather limited. We retain our HOLD-rating with a TP of EUR 8.6 (8.4).
No surprises in the H1 results
Gofore’s H1 results brought no larger surprises, as net sales had been pre-announced at 37.4m the adj. EBITA was quite in line with our estimates at EUR 5.8m (Evli 5.5m). Relative profitability was as expected weaker in the second quarter compared to the first quarter but saw no major direct negative impact of the coronavirus pandemic. Demand in the public sector clientele, representing 73.5% of net sales in H1, saw demand remaining steady while the private sector clientele saw some delays in development work and cancellations of projects.
Acquisition seals growth prospects
Our estimates remain largely intact as our marginally lowered expectations for H2 are offset by the slight profitability beat in H1. We expect 2020 net sales of EUR 75.1m (co’s guidance EUR 70-76m) and an adj. EBITA of EUR 10.0m. Our profitability estimates are more on the cautionary side given H1 profitability but in our view reflects the company guidance and P&L changes from the Qentinel Finland acquisition. In our estimates for net sales in the second half of the year we currently expect similar organic growth as in H1 along with the expected EUR 4m M&A impact. In 2021 we see Gofore set for solid earnings growth with help of the large inorganic growth.
HOLD with a target price of EUR 8.6 (8.4)
With only minor estimates revisions post-H1 we fine-tune our target price to EUR 8.6 (8.4), valuing Gofore at ~17.0x 2020e adj. P/E. Demand uncertainty is at elevated levels due to the pandemic but resilience has so far been provided by the large share of public sector clients. Our HOLD-rating remains intact.
Gofore’s adj. EBITA in H1 was slightly better than we had expected, at EUR 5.8m (Evli 5.5m). Revenue amounted to EUR 37.4m (pre-announced). Little direct impact of the coronavirus pandemic on the public sector client segment so far, private sector more affected.
Gofore acquired software testing automation specialist Qentinel Finland Oy, with some 100 employees, and specified its 2020 guidance. We now expect 2020 sales growth of 17.2% and the adj. EBITA to improve to EUR 9.8m (2019: 8.0m). We adjust our TP to EUR 8.4 (7.8), HOLD-rating intact.
Acquisition and guidance revision
Gofore announced the acquisition of Qentinel Finland Oy, a specialist in software testing automation with roughly 100 employees and 2019 sales and EBIT of EUR 12.0m and EUR 1.7m respectively. The debt-free purchase price is EUR 8.9m and an additional purchase price has been agreed upon, expected to be EUR 1-2m, with the deal estimated to be closed September 1st. EV/EBIT multiples of ~7.0x on 2019 figures and upper range of the purchase price appear rather attractive given the high profitability, with our peer group on 2020 estimates at a median on 14.6x. Gofore specified its 2020 guidance in conjunction with the acquisition announcement, with sales expected to be in the range of EUR 70-76m (prev. grow from 2019) and adj. EBITA to grow compared with 2019. The sales impact of the acquisition on 2020 figures is estimated at EUR 4m.
Expecting good H1 figures, acquisition boosting growth
Gofore reports H1 results on August 14th. H1 sales have been pre-announced at EUR 37.4m, with the monthly figures in our view having shown little impact of the pandemic. We see slightly weaker adj. EBITA-margins in H1 compared with the solid 17.3% Q1 margins but still expect a commendable 14.7% adj. EBITA-%. We expect full-year sales and adj. EBITA of EUR 75.1m and 9.8m respectively. The acquisition should keep growth in the double-digits in 2021 assuming a continued limited COVID-19 impact.
HOLD with a target price of EUR 8.4 (7.8)
Following revisions to our estimates based on the acquisition and guidance revision we adjust our target price to EUR 8.4 (7.8), valuing Gofore at 16.5x 2020E adj. P/E, with our HOLD-rating intact.
Gofore released its business review for March 2020 and first quarter figures, with net sales up 12.8% in Q1 and profitability at high levels, with the adj. EBITA-% at 17.3%. We have slightly lowered our estimates due to the Coronavirus pandemic but currently expect only a limited impact in particular due to the comparatively large exposure to the public sector. With our lowered estimates we adjust our TP to EUR 7.8 (8.2), HOLD-rating intact.
Profitability in Q1 back at solid levels
Gofore released its business review for March 2020 and first quarter figures. Net sales in Q1 grew 12.8% to EUR 18.8m. The adjusted EBITA amounted to a solid EUR 3.3m, at a margin of 17.3% (Q1/19: 17.2%). EBITA amounted to EUR 2.5m, affected by non-recurring costs and provisions relating to the divestment of the UK business. Gofore’s profitability figures were clearly positive given the challenges faced during the latter half of 2019.
Currently expect a rather limited impact of the pandemic
We have lowered our 2020 sales growth and EBITA estimates by 3pp and 12.5% respectively. The adjustments relate mainly to the estimated impact of the Coronavirus pandemic. We currently do not expect a major impact due to the comparatively large public sector exposure. We assume some challenges in sales of new projects due to customer investment caution, which we expect to show during H2/2020 as a slightly lower billing rate and thus lower sales and profitability. So far, the effects of the pandemic have been limited to employees shifting to working remotely and March sales figures were at a solid level.
HOLD with a target price of EUR 7.8 (8.2)
Current circumstances relating to the pandemic do not suggest a significant negative impact on Gofore’s operations, but a further prolongation would without a doubt have an adverse effect. On our revised estimates we lower our target price to EUR 7.8 (8.2) and retain our HOLD-rating.
Gofore’s H2 results came in slightly better than expected. EBITA was at comparison period levels and amounted to EUR 3.0m (Evli EUR 2.8m). The BoD proposes a dividend of EUR 0.23 per share (Evli EUR 0.20). Gofore expects revenue and the comparable adj. EBITA to grow compared to 2019. We retain our HOLD-rating with a TP of EUR 8.2 (8.0).
H2 EBITA slightly above our estimate at EUR 3.0m
Gofore’s H2 results were slightly better than expected. Revenue amounted to EUR 30.6m (pre-announced), with growth of 18.2% y/y, while EBITA remained at comparison period levels and amounted to EUR 3.0m (Evli EUR 2.8m). The BoD proposes a dividend of EUR 0.23 per share (Evli EUR 0.20). Full year relative profitability declined slightly, driven by a 5% increase in average wages and a 1 %-point decrease in billing rates, while customer prices increased 2.3%.
Continued revenue and EBITA growth
Gofore expects revenue and the comparable adj. EBITA in 2020 to grow compared to 2019. Organic growth in H2 was according to our estimates clearly in the single-digits, affected by the drop in demand among certain larger customers in Q3. We expect organic growth to pick-up in 2020. Currently, the impact of inorganic growth in 2020 will be clearly smaller and we expect a decline in sales growth to 9.7% in 2020. Gofore is however sitting on a formidable cash position and continued M&A activity is not unlikely. Profitability in 2020 will be affected by one-offs relating to the divestment of the UK business but cost-savings will bring the impact to a net positive. We expect an improvement in adj. EBITA-margins to 13.6% in 2020.
HOLD with a target price of EUR 8.2 (8.0)
Gofore’s performance has slightly faltered, with slower organic growth and minor margin declines, but we still see performance and thus valuation at above peers. We value Gofore at 16x 2020 P/E (goodwill amortization. adj.) and adjust our target price to EUR 8.2 (8.0) and retain our HOLD-rating.
Gofore’s EBITA in H2 was slightly better than our expectations, at EUR 3.0m (Evli 2.8m). Revenue amounted to EUR 30.6m (pre-announced). The BoD proposes a dividend of EUR 0.23 per share (Evli EUR 0.20). Gofore expects that its net sales and comparable adjusted EBITDA will grow in 2020 compared to 2019.
Gofore will report H2 results on February 19th. Revenue in H2 amounted to EUR 30.6m based on reported monthly figures. We expect margin decreases compared to H1/19, driven by the weak development of Gofore’s UK operations and lower revenue, and expect an EBITA-margin of 9.0%. We expect a dividend proposal of EUR 0.20 per share. Growth will in our view slow down clearly in 2020 with a lower impact of inorganic growth and a weaker market outlook. We retain our HOLD-rating and TP of EUR 8.0.
Expecting weaker margins in H2 due to lower revenue
Gofore will report H2 results on February 19th. Revenue in H2 has based on monthly figures been EUR 30.6m, with a y/y growth of 18.4%, of which a majority will have been inorganic growth from the Silver Planet acquisition. Revenue development during H2 has been sub-par, affected partly by a weak development of Gofore’s UK operations, which were divested in early 2020. We expect the revenue development to have had a negative impact on margins and expect the EBITA-margin to decrease to 9.0% (H1/19: 15.1%). Our dividend proposal estimate is EUR 0.20 per share (2019: EUR 0.19).
Relative growth pace seen to slow down
Gofore revised its long-term financial target for growth in December 2019. Growth is still seen to be faster than the target market, but the market growth estimate was lowered from 15-25% to above the general ICT service sector growth but below 10%. Our growth estimate for 2020 is 10.8%, of which some 9% organic (not including possible new M&A activity). Cost savings from divesting the UK operations will have a slight net positive effect on profitability in 2020 and we expect an EBITA-margin of 13.5%.
HOLD with a target price of EUR 8.0
We have not made any notable changes to our estimates pre-H2 apart from adjustments based on monthly revenue figures. We retain our HOLD-rating and target price of EUR 8.0 ahead of the H2 results.
Gofore released its Q3 business review on October 11th and revised it guidance for FY2019 net sales, expected to be in between EUR 64-67m (prev. EUR 67-72m). Q3 was burdened by lower sales in July and August, with net sales growth of 16% y/y, and the EBITA-margin as a result lower than in the comparison period (Q3/19: 9.2%, Q3/18: 13.3%). The near-term demand outlook has improved while uncertainty going forward still remains at elevated levels. We retain our HOLD-rating and target price of EUR 8.0.
Weaker Q3 sales and lowered sales guidance
Gofore’s group net sales in Q3 amounted to EUR 13.3m, up 16 % y/y. Demand during July and August was affected by a delay in project deliveries, as some already signed projects did not pick-up as expected. The lower billing rate saw profitability fall from previous year levels, with a Q3/19 EBITA-margin of 9.2% (Q3/18: 13.3%). Gofore also noted that its UK business sales have decreased considerably during the year, possibly due to uncertainty related to Brexit, and the UK business being clearly loss-making. Gofore further revised its FY2019 net sales guidance to EUR 64-67m (prev. 67-72m) based on the weaker Q3 figures.
Demand recovery to aid end of year figures
We have revised our 2019 sales and EBITA-margin estimates to EUR 65.3m (prev. 67.8m) and 12.6% (prev. 13.6%) based on the Q3/19 figures. The revised guidance range indicates growth of some 18-40% during Q4/19, with the upper range corresponding to monthly levels seen during H1/19. The near-term demand outlook has improved compared with the earlier part of Q3/19, while the volatility in demand seen during 2019 keeps the uncertainty regarding the coming years development at higher levels.
HOLD with a target price of EUR 8.0
On our estimates valuation remains slightly above peers. Gofore continues to be among the top performers based on sales growth and profitability while the increased demand uncertainty remains a cautionary factor. With valuation in our view still quite fair, we retain our HOLD rating and target price of EUR 8.0.
Gofore’s H1 results were slightly better than expected, with EBITA at EUR 5.0m (Evli 4.8m). Of key interest were comments regarding market and demand development, which lacked more precise detail but still imply a weakened outlook. We retain our HOLD-rating with a target price of EUR 8.0 (8.5).
Comments point towards increased uncertainty
Gofore’s H1 results beat our estimates slightly. EBITA amounted to EUR 5.0m (Evli 4.8m), as the impact of the drop in certain customers’ demand during Q2 on margins was smaller than expected. There appears to have been no pattern in the decreased demand per customer segment, which opens up reasons to view the overall market development with further caution. Comments regarding the market development were somewhat lacking in detail and we opt to interpret the information given as likely weaker figures during H2 as filling the gaps caused by the demand drop may prove to be challenging.
Uncertainty driven sales growth estimate revision
We have made revisions primarily to our coming year growth estimates as well as our H2/19 estimates, having lowered our sales estimate to EUR 34.3m and EBITA-% estimate to 12.3% to account for an uncertainty in the demand situation, while our full-year estimates remain mostly intact due to the solid H1 figures. We have also lowered our coming years sales estimates, having lowered our 2018-2021E CAGR estimate by 4pp to 17%.
HOLD with a target price of EUR 8.0 (8.5)
The near-term revenue and earnings development along with the uncertain tone in the market outlook comments in our gives rise to additional concern relating to development in the coming years. We still highlight that Gofore still is and has been among the top performers in its field and as such we continue to justify a valuation premium to peers. Upside nonetheless appears limited and we retain our HOLD-rating but adjust our target price to EUR 8.0 (8.5) to account for the added estimates uncertainty.
Gofore’s EBITA in H1 came in slightly above our expectations, at EUR 5.0m (Evli 4.8m). Revenue was pre-announced at EUR 33.4m, with the organic growth amounting to 16%. Gofore expects net sales in 2019 between EUR 67-72m (unchanged).
Gofore revised its guidance for FY2019 net sales on the 10th of July, expected to amount to EUR 67-72m (prev. guidance EUR 71-79m). The revised guidance is mainly due to unforeseen reductions in demand of some of Gofore’s largest customers. We expect some impact on H1 billing rates but full-year margins to remain at healthy levels. We retain our HOLD rating with a target price of EUR 8.50.
FY 2019 sales guidance EUR 67—72m (prev. 71-79m)
Gofore revised its FY2019 sales guidance to EUR 67-72m (prev. EUR 71-79m) due to reduced demand among some of its largest customers. Based on monthly net sales figures the revision was not completely unexpected, with figures during Q2 in particular being weaker than our estimates. The reduced demand to our understanding stems from a cooling down of customer digitalization investment eagerness and the permanence is difficult to judge. The sales growth in 2019 is nonetheless expected to remain solid, at 32-42% based on the guidance range.
Expect some impact on H1 billing rates
We estimate FY2019 net sales at 69.9m (prev. 73.3m). Growth is supported by several significant orders as well as the Silver Planet and Mango Design acquisitions, with an expected impact on revenue on an annual basis of closer to EUR 10m. Pick up in public sector spending with the recently-elected Finnish government may also offer further growth opportunities going forward. We expect the weaker revenue in Q2 to impact on billing rates and as such on margins but the strong Q1 EBITA-margin (17.2%) will support overall margins in H1. We expect an EBITA margin of 13.7% in 2019.
HOLD with a target price of EUR 8.50
Compared to peer multiples the current valuation does not appear to offer any notable near-term valuation upside. With the rapid sales growth and healthy margins Gofore in our view still remains an attractive case and we retain our HOLD rating with a target price of EUR 8.50.
Gofore’s profitability in H2 fell below our estimates (EBITA EUR 3.0/4.1m act./Evli) largely due to a lower billing rate. Growth is expected to continue to be rapid in 2019, with net sales guidance of EUR 71-79m (2018: 50.6m). We have lowered our profitability estimates, expecting EBITA-margins of around 13.5% in the near to mid-term. With fairer valuation on our revised estimates we downgrade to HOLD (BUY) with an ex-div TP of EUR 8.5 (9.8).
Profitability impacted by a lower billing rate
Gofore’s profitability in H2 fell below our expectations, with EBITA at EUR 3.0m (Evli EUR 4.1m), at an EBITA-margin of 11.5%. The weaker profitability was largely due to a lower billing rate, with wage inflation, the integration of Solinor, and the sales mix also having an impact. Gofore’s guidance for net sales in 2019 is EUR 71-79m, revised from the previous EUR 65-73m mainly due to the acquisition of Silver Planet, with no profitability guidance given.
Margin development uncertainty remains
We have raised our sales estimates to account for the Silver Planet acquisition, while lowering our profitability estimates. Although some elements of the weaker profitability in H2 in our view could be seen as temporary, we take a more conservative stance to margin development and expect EBITA-margins slightly below the 15% long-term financial objective. We expect the Silver Planet acquisition to have a minor positive impact on margins. Our revised estimates for 2019 net sales and EBITA are 73.3m (prev. 67.5m) and 9.8m (prev. 10.4m) respectively. Our estimates assume EBITA-margins of around 13.5% in the near to mid-term (prev. ~15.5%).
HOLD (BUY) with an ex-div target price of EUR 8.5 (9.8)
On our revised estimates Gofore trades at a slight premium on 2019E EV/EBITDA. We continue to see a premium to peers as justifiable due to the expected rapid growth but with our lowered estimates valuation appears fairer. We downgrade to HOLD with an ex-div target price of EUR 8.5 (9.8).
Gofore’s EBIT in H2 amounted to EUR 2.6m, falling below our estimate of EUR 3.8m due to among other things a lower billing rate and increase in subcontracting. Gofore expects net sales in 2019 between EUR 71-79m. The dividend proposal is at EUR 0.19 per share (Evli 0.18).
Gofore specified guidance for 2018 and gave an outlook on net sales for 2019, at EUR 50-52m (prev. 48-52m) and EUR 65-73m respectively. The long-term financial objectives remain unchanged. The demand outlook in broad has remained good. On our revised estimates we expect net sales of EUR 67.5m and EBITA of EUR 10.4m in 2019. On our estimates Gofore trades at a nearly 20 % discount to peers on ‘19E EV/EBIT, which we do not consider justified. We upgrade to BUY (HOLD) with a target price of EUR 9.8 (9.2).
Guidance for 2018 specified and 2019 forecast given
Gofore’s BoD specified guidance for 2018, expecting net sales to be EUR 50-52m (prev. 48-52m). An outlook for 2019 was also given, according to which net sales are expected to grow to EUR 65-73m, excluding any potential acquisitions in 2019. The long-term financial objectives remain unchanged, at 15-25 % net sales growth in the next few years and an EBITA margin of 15 %. The demand situation has in broad remained good and growth is expected across the board of customer areas.
2019E net sales EUR 67.5m and EBITA EUR 10.4m
We have revised our estimates, now expecting net sales of EUR 67.5m (prev. 62.9m), to include for the Solinor acquisition. Our revised EBITA estimate is EUR 10.4m (prev. 9.6m). Our 2019E net sales estimate is on the lower side of the 2019 outlook, leaving sales growth upside along with any potential acquisitions. The availability of skilled professionals remains a limiting factor and the lower range of the 2019 outlook would imply limited organic growth when accounting for the Solinor acquisition.
BUY (HOLD) with a target price of EUR 9.8 (9.2)
Valuation levels have seen declines following recent market uncertainty but, on our estimates, Gofore trades on a nearly 20 % discount to peer on ‘19E EV/EBIT. Having been among the strongest performers both in sales growth and profitability we do not see the discount as justifiable and upgrade to BUY (HOLD) with a target price of EUR 9.8 (9.2).
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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Gofore estimates its 2021 net sales to grow compared to 2020 and its adjusted EBITA to grow in 2021 compared to 2020.
Annual net sales growth exceeding 20%, of which roughly half to be inorganic, and an EBITA margin of 15%
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