Translation: Original published in Finnish on 2/17/2025 at 9:00 am EET.

We reiterate our Buy recommendation and EUR 22.0 target price for Tietoevry. Tietoevry's Q4 was slightly weaker than our low expectations. The market environment remains challenging and the guidance points to a similar performance as last year, after which we expect the company to return to a better earnings growth path. The company also said that the strategic review of Tech Service will be completed in March, but there is more pressure on the selling price than before. Despite near-term operating pressure, the valuation picture of the share remains very attractive from multiple perspectives (2025e DCF EUR 23, SOTP EUR 23 and dividend-% 9%). 

Q4 was weaker than expected

Tietoevry’s revenue went down by 7% to 699 MEUR in Q4, slightly below our and consensus estimates. Broadly speaking, the sluggish performance was driven by a weaker demand environment at the end of Q3 and the impact of the cyber attack at the beginning of the year on Q4 revenue. Exceptionally, all businesses declined organically. Tietoevry’s adjusted EBITA was 89 MEUR or 12.7% of revenue (Q4’23: 108 MEUR). The result was almost 10% below our and consensus forecasts and down almost 20% from the comparison period. The result level can therefore be considered disappointing, and it was driven by the decline in revenue. The company has ongoing efficiency measures in all business units. The reported result was also burdened by a significant non-cash goodwill impairment loss of 200 MEUR related to the Tech Services area. Adjusted EPS was EUR 0.49 for Q4 and EUR 1.92 for the full year 2024. The board of directors proposed a dividend of EUR 1.50 per share for the year 2024.

Details of Tech Services sale process in March

The sale of Tech Services is in the final stages and the company expects to complete its strategic review during March. However, in Q4 Tech Service's revenue decreased significantly and Tietoevry recorded a write-down of 200 MEUR related to the business. For the above reasons, we believe it is likely that the company will not receive the price we previously expected for the business. Based on the weak revenue trend and the substantial write-down, we have lowered our approved EV/EBITA ratio for Tech Service from 6.5x to 6.0x, giving an enterprise value of 507 MEUR. However, we also note that there are still uncertainties about the price, as well as the closing of the overall transaction. Keeping Tech Service as part of Tietoevry would initially be negative news, but if the purchase price falls very low, keeping the business as part of Tietoevry starts to make sense for cash flow reasons.

Guidance indicates flat result year-on-year

Tietoevry expects the company's organic growth to be between -3% and +1%. The company estimates its full-year adjusted EBITA-% to be 12.0-13.0% (12.3% in 2024). As a baseline, the company expects a 3% decline in revenue if the market remains at current levels The mid-point of the guidance will be reached if the market recovers in H2 and the upper limit if the market recovers at the beginning of the year. Due to a weaker-than-expected demand and pricing environment, we slightly lowered our profitability expectations and thus our earnings forecasts by around 5%. We expect revenue to fall by 1% and then return to growth track (~3%) in 2026-27. In addition, we expect the company's adjusted EBITA-% to reach 12.3% in 2025 and then rise to nearly 13% in 2027, supported by revenue growth and scaling.

Valuation picture is very attractive, and strong dividend provides good basis for expected return

On our estimates, the adjusted P/E and EV/EBIT multiples for 2025-26 are ~9x. The multiples are ~45% below peers. The corresponding reported ratios are 11-14x, but almost half of the adjustments are PPA depreciation, which do not affect cash flow, and we also adjust these for peers. In our view, the absolute valuation of the share is attractive and the relative valuation is very attractive. The expected return on the share also rises to an attractive level of about 15% on the back of 5% earnings growth and a 9% dividend yield alone. In addition, the sum-of-the-parts (EUR 23) and cash flow calculations (EUR 23) suggest a much higher value than today.