Q2 set to confirm earnings acceleration

GFT reports H1 results on 6 August, and we expect a second consecutive quarter of adj. EBIT growing well ahead of sales. The recent IBM and Accenture news do not read across to GFT, in our view, while two takeovers of listed peers highlight the structural attractiveness of the sector at current prices.

Q2 sales look set to improve 4.5% yoy to € 229.5m and adj. EBIT is seen growing 8.6% yoy to € 16.3m, at a margin of 7.1% (+0.3pp yoy; eNuW). That would mark a second consecutive quarter of earnings growing well ahead of sales, with the pace picking up from Q1 (adj. EBIT +6.8% yoy). The mix should look much like Q1, with double-digit growth in the Americas on the back of strong business in Brazil, a still soft Germany, and a UK business having just passed the trough.

On our estimates, H1 would account for c. 49% of FY sales and c. 46% of the adj. EBIT guidance. This leaves an implied guidance hurdle of just 3.3% yoy adj. EBIT growth in H2 (to c. € 38.5m), alongside 5.4% yoy sales growth (to c. € 471m), implying an 8.2% margin. While this requires the usual seasonal margin step-up from 7.1% in H1, the implied H2 margin would remain slightly below the 8.3% achieved last year. Hence, the FY guidance looks well within reach, without requiring a material acceleration in sales growth or further yoy margin expansion.

Meanwhile, neither of the sector's recent shocks has notable implications on GFT, in our view. IBM's miss sat in hardware, with Infrastructure down 7% yoy, while its Consulting line came in flat. At the same time, while Accenture is normally a fair cross-read, the group bookings decline of 3% yoy (fx-adj.) was attributable to two large managed services deals slipping into FY27. Importantly, consulting bookings were up for a fourth consecutive quarter. GFT sells into the same change budgets, and its core clients, banks and insurers across Europe and Latin America, are highly profitable and well-capitalised, with a modernisation backlog that is structural: ageing core platforms and now AI adoption forcing an overhaul of the systems underneath.

Meanwhile, recent sector M&A suggests GFT's share price understates the value of the business. Since June, two German-listed IT services peers have received all-cash takeover offers from strategic buyers at premiums of 94% and 105% to their respective three-month VWAPs. This implies valuations of c. 14x and c. 35x EV/EBIT (trailing 12-months). Persistent Systems is acquiring Nagarro, a digital engineering group of similar size to GFT at c. € 1bn sales. VINCI Energies is acquiring All for One, a German SAP services house, the same segment GFT has been building since the Megawork acquisition. Both had de-rated on soft German demand first, with All for One posting a 3% sales decline in its latest half-year. In contrast, GFT trades at c. 13x EV/EBIT (trailing 12-months), with earnings growth already reaccelerating.

Confirm BUY, PT unchanged at € 32, based on DCF. GFT is turning its strength in bank modernisation into margin, with adj. EBIT growing ahead of sales in Q1 and, on our estimates, again in Q2.