Our 1-year $393 target price uses a ‘discounted EV’ exercise to calculate intrinsic value based on our forecasted operating profile of the business 4-5 years from now. The calculated EV implies an EV/FCF multiple of ~34x FY27E FCFE of ~$2.52B discounted to a year forward at an 10% discount. The framework that informs our valuation is based off a regression analysis of trading multiples and free cash flow margins of companies across the software universe.

Downside risks that could push the stock below our target price:

1) Macro (inflation and supply chain issues) persist longer and are more severe than expected; 2) Transition to annual contract and M&A transactions fail to drive double-digit FCF CAGR into FY26; and 3) The contribution from conversion of non-compliant user base is prolonged and not achieving the expected contribution to growth.