Translation: Original published in Finnish on 04/23/3036 at 06:43 am EEST

We raise our target price for Digital Workforce to EUR 3.3 (was 3.2) and lower our recommendation to Accumulate (was Buy) due to the recent price rise. The company's revenue grew significantly faster than expected and partly scaled into profitability. Thus, the company offered much-needed evidence of the strategy's and sales' effectiveness. We expect growth to continue as good and scale to profitability slightly better in the future.  The valuation (2026e EV/EBIT 13x, P/E 13x) is attractive with only partially scaled profitability estimates for 2026 due to the stock price rally.

We got the much-needed evidence in Q1

Digital Workforce's revenue grew by 45% to 7.6 MEUR in Q1, and clearly exceeded our estimate. Growth was driven by the e18 acquisition, and we estimate organic growth was 22%. A particularly positive aspect was the acceleration of organic growth, which is clearly better than the IT services sector's development (Q4 +1%). Earnings improved clearly in Q1 and exceeded our estimates The gross margin was 40%, a clear improvement from 34% in the comparison period, and also exceeded the seasonally strong Q4 level (39%). On the other hand, with strong growth and its scaling, this was desirable to say the least. The company commented that it has focused on initiating large customer contracts, which we understand limited the scalability of growth to profitability more significantly. EBITDA was 0.42 MEUR, and 0.50 MEUR when adjusted for one-off expenses. This corresponds to an adjusted EBITDA margin of 7% (Q1’25: -6%).

The strategy resonates, and there is now a better understanding of competitive advantages

The company hosted an Investor Day in March, where it discussed the strategy, AI, the healthcare market, and the updated financial target. Our comments on the day can be read here. Although the strategy has been refined in the right direction in recent years, the results were slim in terms of numbers before the Q1 report. At the Investor Day, the company presented its positioning and solutions in-depth within the insurance and healthcare customer segments. The company has a lot ot industry experts developing solutions/ treatment pathways that AI agents then execute. This improved our understanding of the positioning deep within industry verticals and competitive advantages compared to other small AI startups and automation platforms. In addition, the contract wins in the early part of the year and the company's confidence in its statements and targets improved our confidence that the much-needed results will continue to materialize.

Performance is well on track when reflecting on the guidance

Digital Workforce expects “comparable” revenue to grow by at least 15% in 2026 from 2025. It also expects adj. EBITDA to be 7-13% of revenue. Based on the Q1 report, we slightly raised our earnings estimates for 2026, but kept the earnings estimates for the coming years almost unchanged. We forecast that revenue will grow by 26% (organically 11%) to 31 MEUR and that the adj. EBITDA margin will be 9.5% in 2026. In the coming years, we "cautiously" expect growth to slow down slightly and partly scale into profitability.

Valuation picture is attractive

In terms of investment profile, Digital Workforce is still a turnaround company whose turnaround in profitable growth progressed the year before last. There was a slight setback in early 2025, but things picked up toward the end of the year. Strong contract wins early in the year, the strong Q1 report, and an improved outlook bode well for 2026. Strategic positioning has also eliminated the disruption risk from AI. With partially scaled profitability estimates for 2026 (EBITDA: 9%) and a stock rally (22%), the valuation picture (2026e EV/EBIT 13x, P/E 13x) is attractive. Based on the valuation multiples, the sum of parts (EUR 3.5), and the DCF calculation (EUR 3.3), we estimate the fair value range of the stock to be EUR 3.0-3.8 per share. However, reaching the upper end of the range also requires continuous evidence of the earnings turnaround continuing. In other words, as the earnings turnaround continues, we can start to rely more on next year's very attractive multiples.