Tietoevry: Profit warning was expected and mildly positive

Translation: Original published in Finnish on 9/16/2025 at 8:28 am EEST.

Yesterday, Tietoevry revised its revenue guidance slightly downward and its earnings guidance upward, which was anticipated. Overall, this was slightly positive, as it eliminated the risk of a weaker-than-expected market and Tietoevry's performance within it. In our view, the main reason for the guidance revision was the conclusion of the Sparebank1 dispute in August, which we have also included in our estimates. Next year, revenue should stabilize, and efficiency measures already clearly support this. The share's valuation picture is attractive (2026e P/E 14x and adj. 10x, DCF EUR 20.0 and dividend-% 8%). We reiterate our Accumulate recommendation and EUR 17.0 target price for Tietoevry.

Company's revenue guidance decreased and profitability guidance increased

On August 19, Tietoevry announced that based on the court ruling in the dispute between Tietoevry and Sparebank1 Utvikling, the company will book a fixed fee increase of approximately 24.5 MEUR in Q3 and approximately 2.2 MEUR in Q4 to its revenue. Furthermore, the company has reviewed the overall market development, the current financial outlook of its businesses and the impact of the closing of Tech Services divestment. Consequently, the company updated its growth and profitability outlook for 2025. Tietoevry now expects its organic growth to be in the range of -3% to 0% (prev. -2...+1%). The company estimates its full-year adjusted EBITA to be 12.7-13.3% (prev. 12.0..13.0%). Both revisions to the guidance were anticipated after the Sparebank1 dispute was resolved in August. Before the dispute was resolved, we anticipated that the company would issue a negative profit warning regarding its revenue and profitability, which would have been the case now if the dispute had not been resolved.

We incorporated effects from the SpareBank 1 dispute into our forecasts

We incorporated the effects of the Sparebank1 dispute into our forecasts, which primarily affected the Q3 result, as well as Q4 and 2026 slightly. The impact was approximately 1.5 percentage points on revenue and 1.1 percentage points on EBITA-%. We now estimate that revenue will decline by 0.9%, with an adjusted EBITA% of 12.9%. Next year we expect revenue to stabilize and efficiency measures to drive profitability improvement. Operating cash flow will be weak this year, pressured by the earnings level and large one-off costs. However, we consider a “good” dividend payout likely, given the funds received from the sale of Tech Services and the Sparebank1 dispute.

Consensus dividend forecasts have fallen from EUR 1.40 to EUR 1.17 after the Q2 report. Nevertheless, we estimate that the consensus forecast does not give much weight to the Sparebank1 dispute, even though it was likely at the time of the Q2 report.

Tietoevry is a turnaround company

Tietoevry is clearly a turnaround company, which weighs on its valuation. However, with the Tech Services transaction, the company's structure simplifies and the remaining parts are positioned in the market's growing sub-segments. Tietoevry will be a more focused international company offering software services and development and consulting services. Based on our estimates, the adjusted P/E multiples for 2025-26 are 10x (2026e reported 14x) and EV/EBIT multiples are 10x-9x. Roughly two-thirds of the 2026e one-off items are "justifiably" adjusted PPA amortizations. The multiples are nearly 40% below international peers. In our view, the absolute valuation of the share is attractive and the relative valuation is even very attractive. For 2025, our dividend yield estimate is just over 8%, while the consensus estimate is 7.5%, which provides support for ownership through the uncertainty, even if operating cash flow does not temporarily cover the entire dividend.