Sirma Group Holding: Wait and see (downgraded to HOLD)

We have downgraded our rating on Sirma Group Holding (Sirma) from Buy to HOLD, and reduced our 12M price target (PT) from BGN 0.64/share to BGN 0.45/share (3% upside potential). Sirma’s 9M21 revenues amounted to BGN 44.2m (+9% yoy), while its EBITDA reached BGN 10.1m (+5% yoy). This means that it has been lagging the recovery in the global ICT market, excluding the telco segment (+12.7% yoy in 2021E in value terms, according to Gartner), resulting in our more cautious stance towards Sirma’s long-term growth outlook (we have cut the EBIT margin by 2ppts and the top line by 7%). As potential upside for our figures, we see the recent acquisition of Sciant, a Bulgarian IT company. However, as the company has not disclosed many details on the deal, and it has not been engaged in many M&A recently, we prefer to wait and see before including it in our model. On its P/12M trailing EPS, Sirma is valued close to its historical levels, at 7.5x, vs. the 8.2x average. As a potential sweetener in Sirma’s equity story, we see the large buyback (up to BGN 20m may be spent on the programme by the end of 2022E, with a cap price of BGN 2.0/share), which has not been executed on a large scale, until now (December 2021), however.