Translation: Original published in Finnish on 6/10/2025 at 8:00 am EEST.

Tecnotree announced on Monday that it had entered into an agreement with a global mobile virtual network operator to deploy Tecnotree's BSS platform in the United Kingdom and other European markets. The five-year contract is valued at approximately 19.6 MUSD, which is a significant deal on Tecnotree's scale. We made clear upward revisions to our estimates, and we also foresee the possibility of increased guidance this year. The company currently has strong sales momentum, but we believe that the improving cash flow is already priced into the stock, given the rise in the share price. We raise our target price to EUR 4.3 (was EUR 3.8) and reiterate our Reduce recommendation.

Agreement covers deliveries to several countries

The agreement covers software licenses, implementation and maintenance services in the UK and other European countries. Of these, maintenance services will provide the company with longer-term recurring revenue. We understand that the agreement will initially cover projects in four countries, with revenue generated per country based on the projects carried out. Once the first four countries have completed the delivery phase and transitioned to continuous services, deliveries will proceed to other countries. Tecnotree expects to recognize the first revenue from the project in H2’25, and thus the deal will begin to moderately support the growth outlook already this year. However, we expect the clearer impact on revenue to be felt next year.

Support for growth outlook in coming years

The agreement is of significant size for Tecnotree, and given the other deals announced in the Netherlands and South Africa during Q2, the company has been able to fill its order book considerably recently. This latest deal is particularly positive for the company as it is located in the UK and the rest of Europe, which means that the currency risks are moderate (contract is in USD), and repatriating the cash flow is expected to be relatively straightforward provided the company meets the agreed-upon milestones within the specified timeframe. In any case, Tecnotree's sales momentum is currently strong, and the company's growth outlook has received a clear boost. If the deals are profitable, they should naturally be reflected in cash flow, but as is typical of Tecnotree's business model, we expect the deals to tie up working capital initially. However, this is mitigated by the advance payments included in the contracts, we believe. In the release, Tecnotree said it will assess the impact of recent new contracts on its guidance as delivery plans are finalized. In our view, the company's revenue guidance in particular (low-to-medium growth rate) seems cautious at the moment, and we believe our increased forecast indicates an upward revision of the guidance. Cash flow guidance may also prove cautious if the company receives large advance payments.

Although a rise in the share price is justified, the stock already reflects a significant improvement in cash flow

Tecnotree’s share price has rightly risen sharply following the recent agreements. We have increased the cash flow estimates in our DCF model and further lowered our required return to 14.5% (was 15.2%). Our model now indicates a value of EUR 4.3 per share, although it does not take into account the dilution caused by the company's convertible bonds and the employee stock option plan in the coming years (combined effect of around 40% at the current share price if the remaining convertible bonds are subscribed). Around the lower end of this year's cash flow guidance, the cash flow yield would be in the single digits, which we find unattractive given Tecnotree's risk level. In our view, continued improvement in cash flow in the coming years is the main driver of the stock and if the cash flow profile were to improve permanently, the stock would still have potential. However, we believe that the improving cash flow outlook, at the current valuation after the price rise, is already significantly priced into the stock, and thus we will continue to monitor the development of the cash flow profile from the sidelines.