Digia as an investment

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Tavoitehinta 7,80 EUR / Add

We raise the target price of the share to 7.8 euros (previously 7.3) reflecting forecast changes and lower the recommendation to ‘add’ (previously ‘buy’) due to the share price increase. Digia’s revenue grew organically slightly better than expected, and the result exceeded our forecasts in Q4. In addition, the guidance and dividend proposal were relatively well in line with our expectations. We expect Digia to continue moderate organic growth in the coming years and accelerate it through acquisitions. We estimate profitability to remain stable now and gradually increase from next year onwards. The overall valuation of the share is attractive (return expectation <15% and 2024e P/E 11x), especially considering the good confidence in earnings growth, low risk profile, and a significant portion of recurring business.

Key Figures 25.02.

2024 25e 26e

2024 25e 26e
Revenue 205,7 211,5 218,5
growth-% 7,10 % 2,83 % 3,32 %
EBIT (adj.) 21,5 22,0 24,1
EBIT-% (adj.) 10,47 % 10,42 % 11,03 %
EPS (adj.) 0,60 0,63 0,71
Dividend 0,18 0,19 0,21
Dividend % 2,70 % 2,73 % 3,02 %
P/E (adj.) 11,14 11,09 9,84
EV/EBITDA 7,49 7,08 6,16
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Would a share buyback correct the multiples - perhaps to these? What other methods could there be? :slight_smile:

24EUR Target price / Add

Key Figures 20.02.

2024 25e 26e

2024 25e 26e
Revenue 186,2 190,2 208,1
Growth-% −1,62 % 2,16 % 9,42 %
EBIT (adj.) 23,9 25,3 28,9
EBIT-% (adj.) 12,85 % 13,30 % 13,90 %
EPS (adj.) 1,27 1,33 1,50
Dividend 0,48 0,50 0,53
Dividend % 2,16 % 2,31 % 2,45 %
P/E (adj.) 17,46 16,25 14,46
EV/EBITDA 11,01 9,95 8,30
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not a day without a deal :smiley: The company certainly seems to have a good buzz.

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Hi forum members! Digia’s 2024 reporting package is now out: Digia Oyj:n vuoden 2024 raportointikokonaisuus on julkaistu

The package consists of an annual review, a remuneration report, and the Board of Directors’ report and financial statements. The Board of Directors’ report also includes a statement on the corporate governance system and a group sustainability report.

If you are particularly interested in sustainability topics, it’s worth taking a look at the group sustainability report. Digia is now publishing a group sustainability report for the first time in accordance with the requirements of the EU’s Corporate Sustainability Reporting Directive (CSRD).

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For the upcoming … # ROAST Digia 21.3.2025

Question: What is Digia’s long-term story, 10-20 years? How is continuous shareholder value growth ensured for the long term? Is continuity built into the company’s “operational narrative”?
Long-term continuity cannot be found in the text of Digia’s published strategy, so could a Digia representative clarify Digia’s future continuity narrative for the longer term?

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Thanks PM!

Indeed, there’s just over a week until the ROAST :fire:. Awkwardly tricky and other questions clarifying the company’s status and direction are welcome!

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Another question for ROAST:

In the earnings guidance for 2025:
“Digia’s earnings guidance for 2025: Digia’s net sales will grow (EUR 205.7 million in 2024) and EBITA operating profit (EUR 21.2 million in 2024) will grow or remain at the same level compared to 2024.”

Question: Why is the margin expected to decrease even though the market should be better?

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Digia Wins Business Finland’s 7 Million Euro Tender | Tivi

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Perhaps one could ask there what measures should be taken to get the product business into proper growth?

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Hi Portfolio_Manager!
Thank you for your good question. Do you mean continuity in terms of the Business Continuity concept?

Kind regards,
Milla / Digia IR

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Hello!

I will try to clarify my question with the following:
So I am asking, how has Digia prepared and planned for long-term continuity regarding ownership, effective company management, and personnel availability? The main idea is whether Digia exists as a growing company across generations, or if Digia will only remain in history as a story of one generation. Asking in another way, will Digia fade as a company if it doesn’t have a continuity plan for future generations of owners, employees, and leaders? Will Digia, in 100 years, be made into a historical account as a Finnish creator of shareholder value across several generations, if the company has planned its future to be a so-called endless continuum of a business story? Have concrete actions been taken for long-term continuity? This is therefore not a continuity plan for recovering from an exceptional situation or a disaster.

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I’ve been researching a lot of Digia’s materials lately, preparing for ROAST :fire:.

Scattered highlights for a usually quiet thread.

The company has invested heavily in its employer brand, and it seems that in 2024, the company’s employee turnover already fell below Gofore’s level. As I understand it, Gofore is often considered the “number one” in the sector in many respects.

Employee turnover: 2022: 16%
2023: 9.5%
2024: 7.7%

Digia’s Konkarit (Veterans) program is also visible, as the oldest recruited employee last year was 70 years old! :clap:

Screenshot 2025-03-20 at 11.18.37

Digia’s growth has been intentionally accelerated by an active M&A strategy. Since such companies acquire expertise, a lot of goodwill is included in the deals. Indeed, it accounted for half of the balance sheet. In such cases, evaluating the profitability of an otherwise relatively capital-light business through return on capital also becomes relevant (pro-level investors can adjust ROICs of capital-light businesses according to the methods in the Valuation book, but that’s a topic for a different discussion :D).

Digia’s return on capital has remained strong, fluctuating between 12-16% in recent years (per Inderes’ calculated ROI on the company page). On the other hand, the criteria for management’s share-based incentives are revenue growth and cumulative EPS growth, which could in principle encourage buying any result and sales at any price on debt. :smiley: But fortunately, this has not been done, judging by the numbers.

Screenshot 2025-03-20 at 11.59.36

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Digia’s “stock market life” might also bother the CEO a bit.
While in the latter half of the 2010s, typically more than a fifth of the shares changed hands annually, last year it was a mere 5%.

Still in 2015 (the oldest visible in the archive), the following financial institutions, among others, had a position in Digia. (very quickly scanned)

  • Aktia
  • OP
  • OP Life Insurance
  • FIM
  • Mandatum Life
  • Nordea
  • Visio
  • Säästöpankki
  • eQ
  • SEB
  • Evli
  • Danske

Currently, the 100-list seems to include

  • Nordea
  • OP Life Insurance
  • eQ
  • Fondita
  • Mandatum Life Insurance

Foreign ownership was practically non-existent in 2015, and it doesn’t seem to be present now either. Has this “quiet period” been acknowledged by the company in any way, and have any specific measures been considered to increase interest?

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Digia and Business Finland have signed a new, five-year agreement, under which Digia will be responsible for Business Finland’s data platform and future analytics, automation, and AI solutions. The value of the agreement is seven million euros. Digia and Business Finland have a long history of cooperation, and now the partnership is expanding into new areas.

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Here is a positive PRESS release from the company :slight_smile:

Digia Plc: New study: Digia is one of Finland’s best IT service providers

According to the latest Nordic Whitelane Research study, Digia is one of Finland’s best application service providers based on customer satisfaction. In a comparison of the Nordic countries, the company ranks among the top ten. This success demonstrates Digia’s capability to serve large organizations both domestically and in the Nordic countries.

“We participated in the study for the first time and I am very pleased with Digia’s placement in a shared third position in Finland. This is a testament to our ability to serve very large client organizations in a changing situation,” says Digia’s Senior Vice President, Head of Managed Solutions business and Application Services, Janne Tuominen.

“Our ranking is particularly valuable because it is an unbiased view based on customers’ real experiences,” he adds.

Over 450 representatives from the largest IT service-acquiring companies in the Nordic countries responded to the IT Sourcing Study conducted by Whitelane Research. In Finland, decision-makers from a wide range of industries and public organizations participated in the study.

Based on the results, eight out of ten customers are satisfied or very satisfied with Digia’s services. Customer satisfaction was nearly 80 percent for both application services and overall satisfaction.

Furthermore, Digia’s results exceeded the average in four out of five key metrics of the study, which concerned delivery quality, customer management models, price, and innovation capability.

“The demand for application services has remained stable among large customers, but their delivery models are changing significantly due to artificial intelligence and automation. We want to be pioneers, especially in leveraging artificial intelligence. At the same time, we continue to invest in our strengths: good customer experience, service delivery capability, innovation, and a partnership-oriented working model,” says Tuominen.

Whitelane Research is a global independent research company that has been studying Europe’s largest IT service providers annually for over ten years. Whitelane’s IT Sourcing Study is considered one of the most representative reports on the IT market.

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HSL Selected Digia to Develop API Interfaces with a 3 M€ Contract

The cooperation between Digia and Helsinki Region Transport is expanding. Digia will enable HSL’s secure data availability for data utilization and the development of digital services in the future.

The cooperation will first focus on developing API interfaces for HSL’s internal digital services, but the tendered management services also play a key role in HSL’s ticketing system renewal.

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The State Information and Communications Technology Centre Valtori has chosen Digia as a partner for Oracle Private Cloud expert services. Digia is one of Finland’s largest Oracle cloud experts, especially with security-critical customers, and the cooperation further strengthens the company’s position.

The State Information and Communications Technology Centre Valtori has tendered Oracle cloud expert services, which provide design, development, and maintenance tasks for the client’s information systems and infrastructure in both Oracle Cloud environments and the client’s private cloud environments.

As a partner for the Oracle Private Cloud segment, the software and service company Digia was chosen through the tender with a two-year, 4.5 million euro agreement.

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Here is Joni’s preview as Digia publishes its Q1 business review next Friday. :slight_smile:

We estimate Digia’s revenue was at the comparison period’s level and profitability decreased slightly in Q1. No major direct changes should have occurred in the IT services market during Q1. Generally, however, the global market has become more uncertain due to tariffs, and at least some indirect effects will certainly also impact the IT services sector.

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January-March 2025

  • Revenue EUR 53.8 (53.6) million, growth 0.2%. Organic growth 0.2%.
  • EBITA operating profit EUR 4.6 (5.5) million, decrease 17.6%; EBITA operating profit margin 8.5 (10.3)% of revenue
  • Operating profit (EBIT) EUR 3.9 (4.8) million, decrease 18.3%; operating profit margin 7.2 (8.9)% of revenue
  • Earnings per share EUR 0.10 (0.13)
  • Return on equity 13.0 (18.4)%
  • Solvency ratio 49.7 (43.8)%
  • Earnings guidance unchanged: Digia’s revenue will grow (EUR 205.7 million in 2024) and EBITA operating profit (EUR 21.2 million in 2024) will grow or remain at the same level compared to 2024.
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https://www.inderes.fi/analyst-comments/digia-q125-quick-comment-relatively-well-in-line-with-our-expectations-which-is-better-than-the-sector-average-in-q1

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