Translation: Original published in Finnish on 10/23/2025 at 10:21 pm EET.

We reiterate our Accumulate recommendation for the share and lower our target price to EUR 3.7 (was EUR 4.30) reflecting our estimate cuts. Digital Workforce's Q3 was slightly softer than our expectations. The earnings turnaround has encountered some bumps this year and progressed slower than we expected.  However, we expect the company to grow organically better than the IT services market in the coming years and for this growth to scale into profitability. We find the share's valuation (2026e EV/EBIT 11x, SOTP EUR 4.6) attractive.

Growth was disappointing, but there was no particular drama behind it

Digital Workforce's revenue was at the comparison period's level of 6.6 MEUR in Q3, slightly below our forecast. We estimate that growth is somewhat better than the overall IT services sector (Q2 -4%), but slower than last year and the big picture potential. The decline came from "more valuable" Continuous Services, which decreased by 3% against our forecast of 5% growth. The disappointment is somewhat mitigated by the company's comment that the decline was due to a decrease in sales of less strategic licenses, as well as normal seasonal variations.

Profitability improved year-on-year but fell short of forecasts

Q3 EBITDA, adjusted for non-recurring items, was quite close (0.44 MEUR or 6.7%) to our forecast. However, the company did not specify what these adjustment items consisted of, but we estimate that around 0.1 MEUR was related to the e18 acquisition, which we adjust from the result. The improvement in profitability was driven by several cost-saving measures and a shift in business focus towards more scalable operations. The company's key gross margin rose to 37% (Q3'24: 33%) of revenue, almost in line with our expectations, which is a good level considering that Continuous Services declined somewhat. This creates the conditions for future profitability improvement.

Guidance remained unchanged, although the company is behind schedule for the beginning of the year

Digital Workforce maintained its guidance and estimates that revenue will be higher and adjusted EBITDA will improve in 2025 from the comparison period. For the first nine months, the company is behind guidance in terms of revenue (-0.5%) and more clearly in terms of adjusted EBITDA (-0.2 MEUR or -27%). However, we estimate Q4 to be clearly better than last year, which suggests the company will achieve its guidance. Based on the company's comments, the improved development is supported by a good order book and sales pipeline, but especially by the e18 acquisition. We lowered our revenue forecasts for the coming years, driven by a slightly slower-than-expected start to projects and a decline in recurring revenue. At the same time, we raised our profitability expectations, driven by a better revenue structure. We expect the company's revenue to grow by 6% and adjusted EBITDA to grow to 1.5 MEUR in 2025 (2024 adj. EBITDA: 1.0 MEUR).

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. This year, performance has been more volatile, and there is still clear evidence to be provided of profitable growth. 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 13x) attractive. If growth continues and scales into profitability, the 2027 multiples (EV/EBIT 6x, P/E 9x) are already very attractive, but in our view, it is still too early to rely on this, given the strong earnings growth forecasts. Based on the valuation multiples, the sum of parts of EUR 4.4, and the DCF calculation (EUR 4.5), we estimate the fair value range of the share to be EUR 3.5-4.6 per share. However, the upper end requires a clearly better outlook and execution.