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Profile Software | Growth trajectory on track; two-tiered expansion ahead

Reiterating our Buy in light of expected LSS milestone payments step-up in H2’24 – We pinpoint H2’24 as a likely breakout period for Profile, underpinned by organic top line acceleration in financial (+11% vs. H2’23) and faster execution in LSS (inflows to reach €16m by year-end). Our forecasts appear well-supported given the strong YTD trend in financial (H1 sales +25% higher yoy) and the improving momentum in Greek state digitization as the project pipeline begins to mature. We see this driving Profile’s FY’24 top line to €40.3m (+34% yoy), and EBITDA to €10.6m (+45% yoy), corresponding to an EBITDA margin of 26.4% (+2.1pps above the FY’23 figure).

>60% recurring base, LSS pipeline to drive top line expansion, c27% EBITDA CAGR through 2027e – We continue to forecast c20% revenue CAGR for Profile over 2024-27e, expecting results to be driven by SaaS transition across existing installations and organic customer base growth in financial, as well as stronger inflows from LSS as Profile executes its c€120m accumulated backlog. We note that our mid/long term sales outlook could skew to the upside with the launch of new products (e.g. the recently announced cross-compatible AI add-in for financial software, enhanced with document processing) which could prop up our estimates. That said, under our baseline case, we anticipate that top line acceleration will translate to c27% EBITDA CAGR through 2027e on higher margins (to c28-30% by 2026-27e) thanks to SaaS-related margin benefits, scale efficiencies and cross-selling, particularly in the updated BR&T line.

SaaS IT spending in secular growth, cash generation provides capital deployment optionality – Financial software is poised for sustained growth, driven by increased IT spending on SaaS among banks, as well as rising demand for scalable, AI-integrated solutions in front-office investment mgt operations. Profile is well-positioned to capitalize on these trends, bolstered by its expansive portfolio, AI-embedded offerings, and opportunities for upselling to clients. With a robust >60% recurring revenue base, solid profitability, and moderate capex needs, the model is essentially self-funded, ensuring continued R&D investment. Profile’s strong fundamentals, combined with the €120m LSS backlog, are expected to drive FCF generation of >€10m p.a. and net cash of >€30m by 2027e, which would put the company in an ideal position to seize M&A opportunities, reinvest for development, or boost shareholder returns.

Valuation – We continue to value Profile using a blended methodology, combining our DCF (at 8.9% WACC) with an M&A-based component to reflect ongoing acquisition activity within the broader financial software industry. After incorporating our slightly modified 2024-25e estimates and rolling over our valuation to 2025e we arrive at an unchanged PT of €6.5, valuing PROF at c10.5x 1-yr fwd EV/EBITDA. This still places Profile at c40% discount vs. the EU IT sector, indicating potential for further upside ahead, driven by the company’s dual role as both a financial software provider and a facilitator of the Greek state’s digital transition effort.