Translation: Original published in Finnish on 12/5/2024 at 07:18 am EET

On Wednesday, Sitowise organized an investor event deep-diving into the company’s Digital solutions business. The event discussed the role of the business for Sitowise and the growth opportunities it brings. The company also presented its proprietary product portfolio. The day brought no changes to our forecasts or outlook but provided interesting information about the products and services that Sitowise has in this business area. A recording of the event can be seen here.

Digital solutions play a growing role at Sitowise

Digital solutions account for approximately 14% of Sitowise’s business (Q1-Q3’24 revenue share), but stand out from other businesses that focus more on technical construction. In the business, Sitowise combines its building expertise with IT, programming and digital skills, also making Sitowise's offering somewhat unique in the competitive landscape of construction consulting companies. The Digital Solutions business develops, e.g., digital services and products for built environments, transport and mobility.

Sitowise has a strong position, especially as a provider of information systems and services for mobility and infrastructure in all modes of transport in Finland. Approximately 60% of the business is tailored software development and 10% is consultant-based business for customers. These businesses are very similar to normal IT consultancy among other players in the industry, and growth is largely dependent on market development. At the same time, we estimate that profitability is close to the Group’s target levels (over 12% EBITA), which can be considered a good performance relative to the IT industry.

Product and SaaS services represent approximately 30% of the company’s revenue at the moment and the aim is to increase this share. The products include, e.g., the spatial data platform Louhi, the road maintenance system Routa, the infrastructure and equipment maintenance system Infracontrol, the climate impact assessment tool Planect, and tools designed for forest professionals Foresta and Leafpoint. The customers of the products are currently mainly Finnish and Swedish municipalities and the public sector, but the aim is to introduce products to the private sector, e.g., through industry. In addition, international expansion starting from the Nordics supports stronger growth in the product business. In the product business, profitability potential is also clearly better than for the rest of Sitowise (Inderes’ potential estimate over 20%) but at this stage, many products are still in the growth phase.

Doubling the business

Sitowise aims to double the revenue of digital solutions to 70 MEUR by 2030. This is in line with the annual growth target of approximately 10% that was set for the business in the 2023 strategy update. The strongest growth is expected in product businesses (Sitowise's estimate: around 15% CAGR-%), but consulting and software development can also be seen to pick up in the coming years after a weak market period (Sitowise's estimate: around 3-5% CAGR-%). However, the aim is to increase the share of recurring revenue services in particular (target 2025: 10% of revenue) in Sitowise’s total (now approximately 4%). However, we believe the products are built for a narrow sphere of activities (forest sector, infrastructure and transport network) and the market potential for different products is still a little obscure for us. The customer base focused on the public sector can still bring significant growth in Finland, but before long, products must also be internationalized. From the perspective of internationalization, the replicability of products to different markets is not necessarily the easiest, e.g., when considering map data, regulation, reporting regulations, and various requirements for, e.g., forest management in different countries.

As a whole, however, we see Digital solutions as a good addition to Sitowise’s business. The megatrend of digitalization is still in its early stages in the construction realm, which provides room for business growth. In general, stronger growth than in the construction business and better profitability in a more mature stage will also support Sitowise as a group to reach the targeted EBITA margin of over 12%, as long as the challenges of building construction and the Swedish business are partly resolved.