Berenberg has initiated coverage of enterprise software company 74Software (EPA:74SW) with a Buy recommendation and a target price of 44 euros, a level that the bank says represents about 53% upside versus the most recent closing price. Following publication of the research note, the stock rose by more than 3% on Thursday.
The analyst report frames 74Software as a specialised enterprise software platform formed after Axway's purchase of Sopra Banking Software (SBS) in 2024. That corporate combination, the bank argues, creates a focused group positioned to extract operating efficiencies and cross-sell services across adjacent client bases.
Wolfgang Specht of Berenberg emphasises working capital optimisation as the central mechanism for improving cash generation. The note forecasts operating free cash flow growth at a compounded annual rate of 16 percent for the period 2025 through 2028. Berenberg expects this expansion in FCF to support rapid deleveraging and to free up capacity for reinvestment into the business.
The research highlights several quantifiable levers. Berenberg sets out additional cost-saving potential in the range of 6 million to 8 million euros a year. It also points to cross-selling Axway services into the existing SBS customer base as an important revenue-growth opportunity. According to the analyst, the critical integration phase of SBS has already been successfully executed, which the note suggests creates an opportunity for investors to participate in what it describes as a largely undiscovered high EBIT and FCF growth story.
On the subject of artificial intelligence, the analyst takes a measured view. Berenberg argues that 74Software's product set is focused on critical tasks that carry strong requirements for security, governance, auditing and compliance. For that reason, the note expects the adoption of agentic AI by the company's customers to be gradual and initially confined to peripheral systems, rather than causing an immediate step-change in demand.
That slower adoption pathway is viewed as beneficial because it provides time for 74Software to develop its own AI capabilities or to establish partnerships with third parties, according to the report.
Profitability upgrades are central to Berenberg's valuation case. The analyst projects that the group's operating-activity margin will rise from below 7 percent in fiscal 2024 to greater than 13 percent by fiscal 2028, and identifies that margin expansion as a primary driver of both EBIT and free cash flow growth.
As a result of stronger cash generation and higher margins, Berenberg expects net leverage to fall below 2.5 times EBITDA by the end of 2025, with the potential to decline below 1.0 times by 2027. The research notes that such deleveraging could create capacity for strategic uses of capital, including mergers and acquisitions, share buybacks or the introduction of dividends.
Implications
The research note positions 74Software as a name where unit-economics improvement and margin recovery are expected to materially enhance enterprise value over a multiyear horizon, while the bank views AI-related disruption risk as limited in the near term.