GTF: Beneficiary of Affordable Digitalization

Last Updated: 20. Dezember 2023By

Digitalization is advancing inexorably with the mega trends of artificial intelligence and cloud. The focus of the offshoots is clearly on the digitalization beneficiaries from the USA. But Germany also has some interesting companies to offer in this regard, especially in the small cap segment. Their stocks often offer considerable catch-up potential. I would like to introduce one of these digitalization winners to you today: GTF Technologies.

Brief Profile German IT specialist GFT Technologies has focused on the financial sector and offers its software in cooperation with the major cloud providers Amazon, Google and Microsoft, among others. GFT’s software covers a wide range of applications, including risk management, compliance software, internet and mobile banking, customer management and multi-channel marketing in the banking sector. Deutsche Bank is one of the largest customers. In addition to Europe, the company is active mainly in North America and Brazil.

Double-digit sales growth despite difficult market environment So far, 2023 has been very satisfactory. Although many customers are (still) holding back on investments in the current difficult market environment, GFT Technologies was able to increase its sales by +10% to 594.60 million euros in the first three quarters. The adjusted operating profit increased by 7% to 52.14 million euros. The growth driver was the Europe business with a +22% increase in sales.

Profit margins are expected to increase in the coming years In the current year, earnings growth will be lower than sales growth. In the following years, analysts expect a significant increase in earnings growth and thus higher profit margins.

Rollercoaster ride in the stock price in recent years Since the pandemic crash of 2020, the stock has had a wild rollercoaster ride. The rise from the crash low of 6 euros to almost 50 euros within just two years may have been a bit too much in the short term. A breather was then absolutely necessary.

But as is often the case on the stock exchange, an overshoot to the upside was followed by an overshoot to the downside. In September the price fell to 23 euros – since then it has been going up again, the 30 euro mark has now been crossed.

Stock is relatively cheap The current market value is just under 800 million euros, in line with the annual sales. A favorable value – especially compared to the USA. US software companies are often valued at several times their sales.

The same picture can be seen with earnings: Based on the forecasts for the coming year, the price-earnings ratio (P/E ratio) is under 15. There is still some room for improvement. Overall, I see considerable catch-up potential in the small cap segment.