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Talenom - Solid performance to continue

Talenom has seen success in achieving well above market growth while simultaneously vastly improving profitability, relying on technological advances to automate processes and enhance efficiency. We continue to see room for near-term margin improvement, while the fragmented bookkeeping services market offers continued room for growth.

Focusing on rapid organic growth

Talenom has taken a different approach from the mainly inorganic growth focused competitors in the fragmented bookkeeping services market by successfully focusing on organic growth, having achieved a sales CAGR of 14% during 2015-2018. Growth has been enabled by Talenom’s separation of accountants and sales force, which we expect to continue supported by benefits of digitalization and the market fragmentation. We expect a sales CAGR of 17% during 2018-2021E.

Margin improvements from process efficiency

Talenom has invested heavily in improving the efficiency of its bookkeeping production line. Through centralization of bookkeeping tasks and automation of processes the company has been able to decrease resource needs, resulting in sizeable improvements in margins. We expect further development in 2019 to give a slight boost to margins, with our 2019E operating profit margin estimate at 19.5% (2018: 17.5%).

BUY with a target price of EUR 35.0

We retain our BUY rating and target price of EUR 35.0. Our target price values Talenom at 27.5x 2019E P/E, slightly above our business support services peer group, which we consider warranted due to the highly recurring nature of revenue and stability of the bookkeeping services market. The high valuation is further supported by earnings growth through both sales growth and margin improvements (Evli 2019E sales growth +20.9% and EBIT margin +2 %p).

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