Analyst Panu Pikkanen investigated the growth and return outlook of Siili Solutions Oyj, a software developer listed on OMX Helsinki. The company has achieved significant growth through both organic and inorganic developments without compromising profitability or investor returns. New offices in Germany and the United States enable the company to strive for the cutting edge of software innovation in markets where demand is the greatest, while leaning on established business partners and brand in its home market in Finland. A discounted cash flow analysis implies a potential upside of 20,17% as of 7 December, 2017.

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Case Summary: 

Hidden drivers imply an undervalued stock 

The company’s P/E ratio is not far off from its peer group, but a balance sheet and acquisitions analysis implies that the company is stronger than its peers in generating value while maintaining a steady growth through organic and inorganic growth.

EPS and dividend growth 27,9% and 28,5% since 2012

The EV/EBITDA multiple can be forecasted to 12,9x in 2018, indicating that enterprise value may outpace EBITDA growth in the near future. The forward P/E ratio estimate for 2018 yields a falling price from 17,9x to 14,2x.

 Strategic positioning and courage to innovate

The long-term strategic growth aim of the company has begun to yield results as Polish labor supports the scalability of the business and other foreign expansions keep the company on the expertise demand curve of automobile digitalization.

Robust balance sheet and reliable earnings

Siili’s growth has outpaced the IT-sector and there are indications it will manage to do so in the future. However, this has not lead the company to faltering leverage, liquidity or profitability as most key ratios remain on the industry baseline or a better level.

Strong management expertise has kept growth on track

The current CEO steps down in January 2018, but the interim CEO and current Chairman of the Board and co-founder of the company signaled to keep up the current success strategy. Largest shareholders are a mixture of the company management and insurance companies in the home market, signaling trust on a baseline improvement even from conservative investors.

Controlled risk slows growth but brings stability

The company has capacity to grow more aggressively than it has, but in keeping with the current strategy the most forward-leaning growth options have been traded to keeping the balance sheet strong enough. Risk in the company is manifested in two main factors: keeping up scalability and agility as an expanding IT company and ensuring success in foreign markets.

 

Siili.framsida