Translation: Original published in Finnish on 11/26/2025 at 9:31 am EET.

Tietoevry held a Capital Markets Day yesterday evening, where the company, in its typical fashion, thoroughly explained when and how it expects growth and profitability improvements to materialize. In addition, the presentations contained an exceptional amount of concrete detail. This makes it considerably easier to monitor the company's new ambitious financial targets. We made small positive estimate revisions following the Capital Markets Day and last week's guidance upgrade. As the company is investing more heavily in growth than before, we have significantly cut our dividend forecasts. We reiterate our EUR 18.0 target price and Reduce recommendation for the share. The valuation of the share remains neutral.

New financial targets are ambitious

The company's target is over 5% annual revenue growth in 2027-2028 and an adjusted EBITA margin of over 16% by 2028. Tieto's new medium-term financial targets were higher than our and consensus expectations. In 2027-2028, the company expects most of the growth to come from Nordic software businesses (Tieto Banktech, Tieto Indtech and Tieto Caretech). In addition, the company expects to grow its revenue in Europe to the 500 MEUR range (currently 100 MEUR) by 2028. In the consulting business, the company expects lower growth (>3%). The company also thoroughly reviewed where it expects growth and improved profitability to come from. Most of the improvement in profitability in 2027-2028 is expected to come through growth, which is why it is important for the company to succeed in turning to significantly stronger growth. In our view, however, this also requires a boost from a better market.

It was also interesting to hear about business synergies, and the company now sees synergies between consulting and software businesses. Thus, in recent years, the company's views have changed on a couple of occasions. However, the company now wants to further simplify its business. In our view, this is particularly related to Tieto Indtech products, of which there are eight, and only three are expected to grow in the future.

We expect the company to fall short of its financial targets in 2027-2028

Following last week's profit warning and faster-than-expected cost savings, we slightly raised our earnings estimates for the current year. In addition, we slightly raised next year's earnings forecast. However, next year will still be an interim year in terms of revenue development, even though we expect profitability to improve slightly, driven by the significant (115 MEUR) cost savings initiated this year. We expect the company's revenue development to be 0%, +2% and +3% in 2026-2028. For profitability, we expect the adjusted EBITA margin to be 13.9%, 14.1% and 14.2% in 2026-2028. Thus, we expect the company to fall short of its financial targets (>5% growth and >16% EBITA-%). Furthermore, we significantly (~30%) cut our dividend forecasts, as the company is investing more heavily in growth. Our dividend estimates do not include potential share buybacks or additional dividends, which we estimate to be possible no earlier than 2027. The risk is that growth investments will not yield the desired growth.

Tietoevry is a correctly priced turnaround company

Tietoevry is in a way a turnaround company, as growth and the profitability turnaround are yet to be proven, which limits the valuation. However, with the Tech Services transaction, the company's structure was simplified, and the remaining parts are positioned in the market's growing sub-segments. Tietoevry is now a more purely international company offering software, development and consulting services. According to our forecasts, the adjusted P/E and EV/EBITA multiples for 2026 are 11x and 10x, respectively, while the reported corresponding multiples are 16x and 13x. Roughly two-thirds of the 2026e one-off items are "justifiably" adjusted PPA amortizations. The multiples are 25% below international peers. We consider the company’s valuation neutral. The dividend yield is 4-6% according to our estimates, which somewhat limits the stock's downside. A higher acceptable valuation would require better visibility into revenue growth and further profitability improvement.