Tieto Stock Rises as UBS Sees Disposals Helping Earnings

Tieto Oyj, Finland’s largest software producer, rose the most in seven weeks after an analyst at UBS AG said the company will increase profitability by cutting costs and divesting units that lack competitive size.

Tieto increased as much as 2.3 percent to 14.97 euros in the biggest intraday gain since May 10, and was trading up 1.4 percent at 11:31 a.m. in Helsinki. That pared the decline this year to 0.3 percent, valuing the company at 1.09 billion euros ($1.41 billion).

The software maker has disposed of smaller businesses across Europe and the U.S. as the company scales back its focus to industries and markets where it can be among the top three service providers. Helsinki-based Tieto said yesterday that it completed the sale of operations in Germany and the Netherlands, including units with 900 employees that generated more than 110 million euros in net revenue last year.

Disposals of less profitable units “de-risk the business by removing subscale operations,” Michael Briest, an analyst at UBS, said in a note to clients today. He raised his recommendation to buy from neutral.

“Tieto still offers a steady ‘grind’ higher in profitability as project overruns are trimmed, efficiencies executed and non-profitable overseas businesses exited,” Briest wrote. “Good cash generation and dividend prospects are supportive.”

Tieto will continue to increase its annual dividend through to 2016, reaching 1.05 euros a share in what would be the sixth consecutive year of payout increases, according to Bloomberg dividend projections.

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