Digital Workforce Q2'25: Improved outlook and acquisition strengthened growth platform in UK

Translation: Original published in Finnish on 7/20/2025 at 10:35 pm EEST.

We reiterate our Accumulate recommendation for the stock and raise the target price to EUR 4.3 (was EUR 4.10), reflecting a better growth outlook. Digital Workforce's Q2 was better than expected and a good step up after a weak Q1. Sales were strong in Q2, and the sales pipeline remains good, providing a good foundation for the remainder of the year. The main focus on Friday, however, was on the acquisition, through which the company significantly strengthened its foundation for growth in the UK. We expect the company to grow organically in the coming years significantly better than the IT services market and for growth to scale into profitability. We find the stock's valuation profile (2026e EV/EBIT 11x, sum-of-parts EUR 4.6) attractive. 

Slightly better Q2 report than our expectations

Digital Workforce’s revenue increased by 2% to 7.1 MEUR in Q2 and was slightly below our expectations. Revenue from more valuable, continuous services fell short of our forecasts but was nevertheless at the level of the previous quarter. In terms of sales, the company won several good contracts during the quarter. In addition, the company commented that the number of sales projects is clearly higher than the previous year, which is naturally positive and supports growth. EBITDA was 0.4 MEUR, exceeding our forecast of 0.2 MEUR. The EBITDA margin was thus 5.7% and improved significantly from the previous quarter (adj. -5%), driven by efficiency measures.

Significant partner acquisition from the UK

Digital Workforce announced on Friday that it would acquire English e18 Consulting Ltd. The acquisition is a complementary and strategic acquisition that strengthens profitable international growth in the healthcare sector. The transaction will increase Digital Workforce's annual revenue by just under 20% and next year's EBITDA by just over 20%. In our view, the transaction has good potential for revenue synergies and for broader utilization of Digital Workforce's capacity. In our view, the deal structure is good, as it is more heavily weighted towards earn-out than usual and tied to performance. Digital Workforce's recurring revenue-focused business model also strengthens customer retention and reduces the risk of customer churn once the earn-outs have been paid. In addition, the fact that the companies already know each other reduces integration risk and improves synergy potential. It is somewhat challenging to comment on the deal's valuation in more detail at this stage, especially as we do not know the criteria for the earn-out payment. Overall, considering the preliminary purchase price valuation (EV/EBITDA 9x) and good customer retention, the purchase price is neutral/low in our view.

Improved growth outlook organically and through a growth platform created by an acquisition

Digital Workforce expects higher revenue and improved adjusted EBITDA year-on-year in 2025. We made minor adjustments to our organic estimates and included the acquisition in our estimates. We forecast the company's revenue to grow, driven by the acquisition, by 8% and 25% in 2025-26 (organically, Q4'25e 7%, and 2025-26 3% and 12%). Over the same period, we expect adjusted EBIT to grow to 1.5 MEUR and further to 2.8 MEUR, which represents 5% and 8% of revenue (2024: 0.8 MEUR). The company has losses of 14 MEUR from previous financial years, which means that it will probably not have to pay taxes for many years to come.

Valuation picture is attractive

In terms of investment profile, Digital Workforce is still a turnaround company whose turnaround in profitable growth progressed well last year, which has reduced the risk level of the stock. Following the acquisition, it is justified to primarily consider next year's multiples, which account for the full impact of the acquisition. Next year's profitability estimates are only partially scaled (EBITDA: 8%), making the valuation picture (2026e EV/EBIT 11x, P/E 14x) attractive. As growth continues and profitability scales, the 2027 multiples (EV/EBIT 7x, P/E 9x) are already very attractive, but in our view, it is still too early to rely on this. Based on valuation multiples, a 2024 and 2026e sum-of-the-parts valuation of EUR 4.6, and a DCF calculation (EUR 4.9), we estimate the fair value range for the share to be EUR 3.9-4.9 per share.