On Monday, UBS initiated coverage on nCino Inc. (NASDAQ:NCNO) shares a Buy rating and a price target of $44.00. The firm highlighted nCino's position as a leading provider of bank IT solutions and its potential to capitalize on an over $18 billion global market opportunity. UBS projects that nCino will experience a compound annual growth rate (CAGR) of approximately 15% through the fiscal year 2028.
nCino's Cloud Banking Platform, which integrates onboarding, lending, and deposits for financial institutions of varying sizes, including community, regional, and tier 1 banks, is a key factor in the company's growth trajectory. The platform's ability to consolidate multiple banking services into a single offering is seen as a significant advantage in the market.
Financially, nCino showcases an attractive profile with highly recurring subscription revenue. The company has maintained an average subscription revenue retention rate of around 140% over the past three years. Additionally, the average length of contracts with their clients stands at approximately four years, providing a stable revenue base.
UBS also sees potential for nCino to expand its operating margins to about 27% by the fiscal year 2028. This expectation builds on the company's recent margin improvements, which have risen from -15% in the fiscal year 2020 to an estimated 13% in the fiscal year 2024.
Despite aligning with Street forecasts for the fiscal years 2026 and 2027, UBS suggests that there could be additional sources of upside for nCino. These include the transition to a new pricing model, a rebound in U.S. mortgage volumes, and the introduction of new products.
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