Tietoevry Q2'25: It's tough, but it gets better

Translation: Original published in Finnish on 7/23/2025 at 8:05 am EEST.

We reiterate our Accumulate recommendation for Tietoevry and lower our target price to EUR 17.0 (was EUR 19.0) reflecting estimate changes and increased uncertainty of a turnaround. Tietoevry's Q2 was weaker than our low expectations. On the positive side, the order book continued good development. As expected, the company announced new efficiency measures, which were, however, more extensive than anticipated. In addition, the company announced its focus areas for the near future under the leadership of the new CEO. We have slightly lowered our estimates and forecast that the company will have to issue a profit warning for this year. Next year, revenue should moderate, and efficiency measures already clearly support this. The share's valuation is attractive despite elevated uncertainty (2026e P/E 13x and adj. 10x, DCF EUR 20.0 and dividend yield 9%). 

Q2 was weaker than expected

Tietoevry's Q2 revenue decreased by 3% to 463 MEUR, weighed down by the persistently weak IT market. While the overall development was weaker than expected, the trend for all other businesses except Create improved from Q1. The development of the order book was also positive, growing 18% year-on-year and 4% from the previous quarter. Tietoevry's adjusted EBITA decreased by 14% to 44 MEUR and was 9.4% of revenue. Earnings in Q2 were pressured by widespread salary increases coming into effect, pressures on pricing and demand due to the weak IT market, and the costs of Tech Service's group functions. In addition, the reported result was burdened by a 80.4 MEUR non-cash impairment loss. Profitability was supported by extensive efficiency measures across all business operations.

Near-term focus and new significant efficiency measures

The new CEO stated that the overall strategy would remain unchanged, but clarifications were already provided regarding the near-term focus areas. Near-term focus areas are 1) customer first, thereby restoring customer trust, 2) accelerating the return to a growth trajectory by investing in the sales organization, and 3) seeking a competitive cost structure through a new, more extensive than expected, 75 MEUR cost-saving program, which supports profitability in H2’25 and in 2026. The company will hold a CMD in November, where we expect it to reveal the new remaining entity (excluding Tech Service), its financial targets, and the implementation of its strategy in more detail.

Risk of a profit warning is evident, cash flow is temporarily weak

Tietoevry reiterated its guidance and estimated the company's organic growth to be between -2% and +1% and the adjusted EBITA-% to be 12.0-13.0%. Following the Q2 report, we made slight downward revisions to our estimates for the current year, and we expect the company to issue a profit warning for revenue and profitability. 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, as the sale of Tech Services and the Sparebank1 dispute are likely to provide 24 MEUR in funds in H2’25.

Tietoevry is a turnaround company

Tietoevry is clearly a turnaround company, which weighs on its valuation. However, with the Tech Services transaction, Tietoevry'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 13x) and EV/EBIT multiples are 11x-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 the coming years, with our estimates at the lower end of consensus (consensus 2025e EUR 1.40 and Inderes EUR 1.37 per share), the dividend yield is ~9% and provides support for ownership through uncertainty, even if the cash flow does not temporarily cover the entire dividend.