This is the second blog where I review my investment ideas for selected Scandinavian companies.
Company: ITERA ASA
Ticker: ITE
Stock exchange: Oslo
Industry: IT-Consultancy
Price: 15,45 NOK
Fair Value Estimate: 17 NOK
Recommendation: buy
Corporate Overview
Itera ASA operates as a distinguished communication and technology enterprise, specializing in the conception, development, and management of digital solutions for corporate entities and institutions. The company's primary focus revolves around delivering consultative services and innovative solutions, primarily catering to the finance and energy sectors, while also maintaining a diversified presence in other industries. Its operational footprint spans Norway, Sweden, Denmark, Slovakia, the Czech Republic, Iceland, and Ukraine. With Norway serving as its primary revenue source, Itera commands a workforce of nearly 750 professionals.
Quantitative Metrics
Itera's financial performance has exhibited a notable upward trajectory in recent quarters. A remarkable year-over-year growth rate of approximately 30% was registered in the most recent quarter. This commendable performance can be attributed to a successful strategic shift centered on cloud services. The company has adeptly transitioned from operating its own data center to a model that prioritizes migrating clients to major cloud services providers such as AWS and Azure. This transition has fortified its business model, enhancing both resilience and profitability. Prognostications based on consensus estimates suggest a forthcoming acceleration in net income, as underscored in the ensuing table:
Leveraging its robust financial position, Itera possesses ample cash reserves and the potential to expand dividend payouts. Notably, the company is currently disbursing only half of its potential dividend capacity using free cash flow to equity (FCFE) as a yardstick, depicted in the illustration below:
Over the impending years, Itera's dividend is projected to exhibit robust year-on-year growth, representing an approximate forward yield of 4%. Given the company's sound balance, the prospect of an extraordinary dividend payout over the forthcoming three years is a credible proposition. Additionally, the company's financial operations are underpinned by a self-sustaining investment framework, sustained by the generation of operational cash flows. Projected dividend estimates per share are given in the following table:
Qualitative Factors
Itera is characterized by an ownership structure underpinned by its CEO, Arne Mjøs, who commands ownership of approximately 32% of the company. This ownership configuration serves as a favorable attribute, aligning managerial incentives with the interests of shareholders and fostering a resolute commitment to shareholder value. Furthermore, Mjøs assumes the role of Chairman at the Norwegian-Ukrainian Chamber of Commerce.
Noteworthy is the impact of geopolitical events on Itera's operations, particularly in the context of the Russian invasion of Ukraine. This tumultuous environment necessitated the relocation of Itera's Kyiv office to Lviv and Bratislava. Although the relocation temporarily impacted revenue, the company has successfully recuperated these losses. Impressively, the Bratislava office has emerged as a high-growth subsidiary. Itera envisages a pivotal role in facilitating the green transformation of Ukraine's energy infrastructure following the resolution of the war. Notably, Itera has also extended its operations to the Czech Republic. While the Central-Eastern European offices presently contribute modestly to revenue, their potential to assume a more substantial role in the long term is evident.
The growth acceleration in recent periods has been spearheaded by the cloud engineering division. This segment possesses untapped capacity to undertake additional projects, evident from a robust 29% growth in caseload last year. As this division reaches optimal operational levels, increased efficiency is anticipated, precipitating a reduction in unit costs.
Key Takeaways
Consider incorporating Itera into your portfolio for the following reasons:
Itera occupies a strategically advantageous position within a sector marked by pronounced demand. Cloud engineering and artificial intelligence are poised to serve as primary drivers of growth in the imminent future. The company's ability to leverage its presence across Europe further enhances its growth potential.
Itera's CEO upholds rigorous capital discipline, yet there exists considerable room for dividend expansion, which is unlikely to impede the company's expansion strategies. This dynamic positions Itera as a dependable asset to augment your capital.
Recent share price appreciation aligns with improved earnings. Nevertheless, a calculated assessment indicates a margin for further ascent before a fair valuation is attained. The Discounted Cash Flow (DCF) model, accounting for a margin of safety, corroborates this perspective. My DCF is visualized below:
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