Translation: Original published in Finnish on 10/28/2026 at 06:12 am EET

We reiterate our EUR 6.8 target price for Digia's share, and raise our recommendation to Buy (was Accumulate) following the share price drop and decreased risk level. Digia's Q3 was better than our expectations and eased minor concerns regarding revenue performance and soft profitability. Market commentary was still partly cautious, but more positive than before. The big picture remains unchanged, and we still expect the company to be one of the sector’s winners and a long-term earnings growth engine. The stock's valuation (2026e P/E 9x and EV/EBIT 8x) is simply very attractive.

Revenue held its ground, driven by international business and proprietary products

Digia's revenue decreased by 1% to 49 MEUR, exceeding our estimate of 48 MEUR. Geographically, international business grew strongly (12%), and the decline in Finnish business revenue eased to 4% (Q2'26: -7%). Market challenges continued to be reflected as delays in project starts and smaller-than-planned volumes of development work in some customer accounts. On the other hand, according to the company, Q3 was the best of the current year in terms of sales measured by contract value, which is underlined by the significant delivery agreement signed with OP after the review period.

Efficiency measures propelled profitability to a beat

Digia's adj. EBITA reached 5.2 MEUR, exceeding our 4.7 MEUR estimate clearly. The adj. EBITA margin rose to 10.6%, beating our 9.9% expectation. Better-than-expected profitability is explained by the measures to renew its operations and improve billing rates. In the uncertain project market, margins were likely also supported by the fact that the share of recurring service and maintenance business in revenue increased to 53% (Q3'25: 52%). The quality of the earnings is highlighted by the fact that the company achieved a good margin while continuing its strategic investments in productization, the utilization of AI, and internationalization.

Good and solid earnings growth in the coming years

Digia downgraded its guidance in September and now guides for revenue growth and EBITA below the comparison period in 2026. We kept our estimates almost unchanged, as the adjusted earnings estimates for 2026-2027 decreased by 1-2% and the estimates for 2028 increased by 2%. We expect revenue to grow by 1% to 219 MEUR and EBITA to decrease by 10% driven by a weak H1'26 in 2026. For 2027-2028, we estimate organic revenue to grow by 2-3%, supported by a gradually recovering general market. We estimate that adjusted profitability will rise to just above 10% in 2027-2028 as investments decrease and scalability improves. Digia has historically been very active on the M&A front, and we expect the company to continue its largely successful inorganic growth in the future, once a suitable acquisition target is found.

The valuation picture is simply very attractive

Digia has strengthened its profile as an earnings growth company in recent years and has risen to one of the sector's top performers, which supports the share valuation. Based on the valuation methods we use, the stock is at least attractively priced from all perspectives (2026e P/E 9x, EV/EBIT 8x, and an expected return of ~20%). Considering our DCF calculation (EUR 8.0) and the relative valuation level (~30-40% below peers), the share is very attractively priced. Following Digia's September profit warning, the short-term estimate risk has unwound, and Q3 demonstrated moderately positive momentum in terms of the numbers. In the big picture, the company's risk profile is, in our view, among the lowest in the sector, as illustrated by stable and good operational performance in recent years. In summary, we see the fair value of the share in the range of EUR 6.8-8.0 per share. Our target price is at the lower end of the range, weighed down by the weakness earlier in the year. As earnings growth continues, the upper end of the range can gradually begin to be applied.