Talenom - Smooth sailing

Talenom’s Q1 earnings brought no larger surprises. The acquisition of Sweden-based Wakers Consulting and the upgraded guidance greatly reduced two of the in our view main uncertainties and the outlook continues to look solid. We retain our BUY-rating with a TP of EUR 35 (24.5).

No larger surprises in Q1 results

Talenom’s Q1 results did not deviate substantially from our estimates, with revenue at EUR 14.8m (Evli 14.7m) and EBIT at EUR 3.4m (Evli EUR 3.2m). Talenom revised its guidance earlier in Q1 and expects net sales growth in 2019 to increase (prev. remain at a similar pace) compared to 2018 (18.0%) and the operating profit margin to improve (prev. improve slightly) (2018: 17.5%). The hidden gem in our view is the profitability guidance upgrade, as the improvement is expected to stem from development of the accounting production line during H2/19, which we expect to support margin improvement in 2020.

Viewing expansion with caution

Talenom acquired Wakers Consulting during Q1, opening up its first operations outside Finland. The characteristics of the acquired firm in our view proves to show a continued healthy sense of risk aversity, as by size Wakers Consulting is not far from what we would consider a minimum for soundly being able to implement the intended organically driven growth strategy. Management comments on expansion plans imply limited investment needs and erases the in our view biggest uncertainties related to the expansion.

BUY with a target price of EUR 35 (24.5) per share

We have pre-Q1 been cautious to margin improvement potential, which now looks probable also in 2020 through accounting line development during H2/19. Although share price inclines have stretched valuation, with the lower expansion and margin improvement uncertainty we are prepared to accept higher multiples and value Talenom at 27.5x and 22.1x 2019E and 2020E P/E respectively, for a TP of EUR 35 (24.5), reiterating our BUY-rating.

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