Letter to the saver

Reply plays its cards in artificial intelligence. Focus on the United States

The group is pushing research to take advantage of the wave of new technology. Possible M&A to expand business in the US. The risk of a tariffs war

by Vittorio Carlini

10 February 2025

5' min read

Translated by AI

Versione italiana

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5' min read

Translated by AI

Versione italiana

On the one hand, play your cards - and not just yet - in the Artificial Intelligence (AI) revolution. On the other, while continuing to grow in Europe (especially Western Europe), realise the focus on the United States. These are among the priorities of Reply , whose top management the Letter to the Saver heard from, in support of the business.

The corporate purpose

Yes, the business. The group - it was recalled, although the activities are often transversal - divides its revenues into three areas: Technologies, Applications and Processes. The first area comprises the optimisation and enrichment of hi-tech solutions from major vendors, which are adapted to the needs of individual companies/customers (60.8% of revenues in the first nine months of 2024). The second business, on the other hand, is Applications (software), which accounted for 27.3% of turnover as at 30/9/2024. Finally: so-called Processes. This is - in fact - dominated by Consulting (11.9%).

RICAVI E LINEE DI BUSINESS

The World of Ia

Well: Reply is strongly aiming to exploit the Artificial Intelligence (Ai) gold rush. It is a strategy that, first and foremost, requires considerable effort on the R&D investment front. Here, the IT group confirms an average annual commitment of around 5% of revenues. The percentage referring directly to R&D is actually lower. However, to the direct investments must be added the efforts in personnel training, which - as the group is labour intensive - are to be considered essential for research. Having said that, the company, among other things, is focused on generative algorithmics. In particular, the transformation and increase of productivity in the software implementation chain: from coding to script analysis to governance, testing and maintenance. The aim is to optimise processes, both within Reply itself and in the customer's facilities (in the latter essentially through a mix of IT services and products).

Is this an approach where open source is excluded? The answer is negative. The company also draws on open models, although it mainly has proprietary solutions. However, this does not mean - on another front of the company's business - that Reply is aiming to increase its efforts with respect to, for example, proprietary platforms such as Lea Reply (logistics) or Brick Reply (production execution systems). Here the idea is to continue with what already exists but not to accelerate investment.

Investments and costs

All as easy as drinking a glass of water, then? The reality is more complicated. It is precisely with reference to Ia that global vendors - often partners of Reply itself - are faced with mega-investments that may no longer be so remunerative due, for example, to the arrival of DeepSeek's low-cost artificial intelligence. A context that - it is the fear of the saver - could lead to the downsizing of the same outlays and therefore to the potential reduction of the growth rate of realities such as Reply. The group does not share this concern. The company - pointing out that there is no sign of a reduction in disbursements - emphasises that investments will continue. Of course! Investments, is the indication, may in theory be lower in the training of general generative Ia models. And, however, investments will continue on other fronts, such as Artificial Intelligence active in the cloud periphery or for video or in the transition from input/text to output/images. Not only that. Reply, more generally, emphasises that the demand for more computing power, hardware and energy infrastructure will continue. Thus, no particular problem is seen on this issue.

Tariffs or no tariffs

Beyond that, however, it can further be argued that the new US administration has initiated a trade battle that could impact the IT sector as a whole. Again, a scenario that - for example, if tariffs are applied to Europe - risks affecting Reply's business. The Turin-based multinational, although aware of the situation and hoping for a settlement of trade clashes that are good for no one, says it is not worried. First of all, it is recalled, the group is focused on highly sophisticated activities - for example in the digitalisation of business - that are necessary for companies for their own development. In this sense, one only has to think of the use of generative Ia. Against this, the company says, business investment in technology - tariffs or no tariffs - will be there. Again: the group also exploits open source models which, by their nature, are not subject to tariffs. Finally: the company, is the indication, has its presence in America. Admittedly, the size of the 'made in USA' business is still limited. And yet, local-on-local production - which, moreover, characterises a little of everything the group does - is a condition, Reply concludes, that can lend a hand.

RICAVI E AREE GEOGRAFICHE

Foreign Activity

So far, some suggestions regarding border investments, Ia and possible exogenous risks. The It company listed on Piazza Affari, however, is also focused on the greater internationalisation of its business. A strategy that - along with continued expansion in Europe - sees the United States as an essential market for its realisation. To date, America is worth around EUR 200 million in turnover. This is a size that is considered small. Hence the group's aim to expand. Yes, expand. But to achieve what turnover and in what timeframe? The company does not offer any indication on these issues. Having said that, however, the desire is to achieve a market share that allows the right visibility. A condition which should materialise with a turnover in the US of at least 600 million. After that, having acquired the correct starting base, the way is to scale the business, arriving at the creation of a "Reply USA" that can compete with "Reply Europe". The project - evidently - is ambitious and will take time. To date, however, the group has divided its presence in the United States into three hubs. The first is Seattle: here the aim is to continue business development with large partners/vendors such as Microsoft or Amazon. The second is Chicago-Detroit, where the focus is on manufacturing/automotive, while the third is in Atlanta. On closer inspection, the company's strategy - taking advantage of its matrix structure of independent boutiques - is to grow by internal lines. This, however, is to be complemented by M&A activity. Shopping whose aim is to create more contact points with companies/customers. In general - i.e. not referring to America alone - the group does not envisage any transformative acquisitions. In other words: M&A is mainly concerned with medium-small transactions, which should in principle be financed through company cash (the group, as at 30/9/2024, has a positive net financial position of 312.6 million).

LA STORIA DELLA MARGINALITÀ

The Profit and Loss Account

But it is not just a question of US and acquisitions. Savers also look at the dynamics of the income statement. As at 30/9/2024, the company's revenues stood at EUR 1.67 billion, up 7.7% compared to the same period last year. Ebitda and pre-tax profit rose to 275.5 million (235.8 Mol a year earlier) and 216 million (170.3 million as at 30/9/2023), respectively. With reference to the Ebitda margin, on the other hand, the indicator was 16.5%. This is a value that lies within the range in which the same Ebitda margin has moved from 2019 to date.

I PRIMI NOVE MESI A CONFRONTO

Notwithstanding the fact that each annual value has its own history and often depends on contingent situations, the ratio of EBITDA to turnover in 2022 was worth 18% (upper limit of the corridor due, however, mainly to the effect of Covid), while in 2019 (lowest value of the range) it was 16.2% (16.5% in 2020).

Against this background, what then is the outlook for the company's business? The group, as usual, does not offer financial guidance. That said, the company nevertheless indicates that 2024 will be up on the previous year. With reference instead to 2025, Reply says that the year has begun in continuity with 2024.

Further reading

The stock trend

The technical analysis of the stock

Finlabo research analysis

Vittorio CarliniRedattore
Luogo: Milano
Lingue parlate: Italiano, Inglese
Argomenti: Finanza, Tecnologia, Analisi fondamentale
Scheda autore
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