On July 19, analysts at Trigon DM raised the target price for Ailleron shares to PLN 26 from the previous PLN 25, while maintaining their “buy” recommendation. On the day of the report’s release, Ailleron’s share price stood at PLN 16.6, indicating a potential upside of 57%.
Market Overview and Company Performance
Analysts note that the global software house market continues to face challenges. While early signs of increased demand are emerging in the U.S., Europe is still experiencing a slowdown. The significant price declines in the sector’s largest companies reflect cautious investor sentiment. Despite this, Ailleron distinguished itself in the first quarter of 2024 with high profitability. The U.S. acquisition, viewed positively by the analysts, adds potential upside if the American market rebounds.
The report also highlights the positive impact of the settlement with Pekao, slightly weaker profitability in the FinTech segment compared to previous forecasts, and better margins in Software Mind despite lower revenue levels.
Financial Projections and Incentive Program Adjustments
Trigon DM projects a revenue of PLN 21 million for FinTech and PLN 123 million for Software Mind in Q2 2024, with nearly PLN 30 million contributed by the newly acquired U.S. company. The operating result is expected to improve significantly, with FinTech recovering from the first quarter loss and achieving a break-even result by mid-year. For Software Mind, an operating profit increase to PLN 18.5 million is anticipated, contributing to a total group operating profit of PLN 21 million.
The report acknowledges the stringent cost discipline in Software Mind observed in the first quarter, which is expected to continue until market conditions improve.
Trigon DM also notes the announced changes to the financial targets for the incentive program following the U.S. acquisition. The new targets include more ambitious assumptions for adjusted consolidated net profit, with EPS projections for 2024 and 2025 at PLN 2.03 and PLN 2.35, respectively. The analysts’ assumptions for adjusted profit, PLN 20 million for 2024 and PLN 27 million for 2025, appear conservative in comparison but are deemed prudent given the current USD/PLN exchange rate.
Cooperation Agreements and Market Position
In addition to the work for Pekao, Ailleron has announced a framework cooperation agreement with Credit Agricole. The settlement of services in a time & materials format is expected to facilitate sustainable profitability improvements in this area.
Valuation and Recommendation
Given the overall market conditions, Trigon DM has slightly adjusted Ailleron’s valuation upwards to PLN 26 per share while maintaining the “buy” recommendation. Despite the peer group valuation remaining unchanged at PLN 38, the analysts believe Ailleron’s strong performance and strategic moves position it well for future growth.
In summary, while the global software house market remains challenging, Ailleron’s robust first-quarter performance and strategic U.S. acquisition offer a promising outlook. The updated financial targets and new cooperation agreements further support the positive sentiment, leading to the revised target price and continued buy recommendation by Trigon DM.
