Digital Workforce Q4’24 preview: We expect guidance indicating earnings growth and a dividend

Translation: Original published in Finnish on 2/6/2025 at 8:00 am EET.

The software robotics automation pioneer Digital Workforce will publish its financial statements on Wednesday, February 19. We anticipate continued good revenue growth in Q4. The extent to which growth is scaled depends largely on the level of investment. We expect the company to provide guidance on revenue and EBITDA growth for 2025. In addition, the company announced a new dividend policy yesterday and we assume that the company will pay a dividend as early as this spring. We reiterate our target price of EUR 4.7 and our Accumulate recommendation. 

We expect Q4 growth to have continued ahead of the sector

We estimate Digital Workforce's revenue growth to have continued to clearly outperform the sector and to have been 12% or 7.2 MEUR in Q4 (Q3'24 company 10% and sector -3%). By business area, we forecast Q3 revenue of 4.5 MEUR (+17%) for Continuous Services and 2.7 MEUR (5%) for Professional Services. In line with the industry focus, we estimate that the Finnish healthcare market and the North American market, which is the geographic focus of growth, drove growth in Q4 as well. We are also monitoring comments on customer sales and recent technology partnerships.

Scaling of growth depends on investments

We expect an EBITDA margin of 0.3 MEUR or 4.4% of revenue in Q4. The improvement in profitability compared to the weak comparison period is driven by revenue growth, the closure of the Danish and Norwegian offices in Q4'23 and administrative efficiency measures (EBITDA-% Q4'23 -1 1%). The result will continue to be constrained by accelerated investments in AI-based solutions in Q3, recruitment and a shift in the employee profile towards more expensive roles. We don't expect any surprises on the other earnings lines. As a result, we expect Q4 EPS to have increased to EUR 0.02 (Q4’23 EUR -0.08).

Digital Workforce starts paying dividends

Yesterday, Digital Workforce announced its new dividend policy and the start of dividend payments. In the future, the company aims to pay a dividend of at least 30% of the profit for the financial year. We expect the company to pay a dividend as early as this spring. We forecast a dividend of 3 cents per share, which corresponds to just under 50% of earnings or a dividend yield of 1%.

In our view, the dividend payment is a logical decision, as the company has shifted from a strong growth strategy to also emphasizing profitability in recent years. Thus, the strengthening cash flow further strengthens the already strong balance sheet as the company has not used the capital raised in the IPO. The current strong balance sheet and cash flow should be well sufficient for the inorganic growth the company is aiming for and the dividend payment, as organic growth hardly ties up any capital.

We expect the company to provide guidance on revenue and EBITDA growth in 2025

We have added the dividend payout to our forecasts, corresponding to 30-50% of the result in the coming years. Naturally, the amount of dividends will ultimately depend on the number and timing of acquisitions. In addition, we expect the company's revenue to grow by 13% year-on-year in 2025 and EBITDA to increase to 2.4 MEUR (2024e 1.0 MEUR). We expect the company to provide cautious guidance for year-on-year revenue and EBITDA growth. In December, Digital Workforce refined its strategy and the strategy period's financial targets for 2025-2026, our comments on this can be read here.

In the future, dividend payments will bring a new element to the investor story

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. Based on our forecasts and the valuation multiples we accept for the company for the next few years (2025e EV/EBIT 12x, EV/L 0.9x), the sum of the parts (EUR 4.6), the scenario analysis and the DCF (EUR 5.7), we estimate that the fair value range of Digital Workforce’s share is EUR 4.2-5.7 per share.