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Talenom - Solid quarter, investments ahead

Talenom’s Q3 profitability beat expectations. Based on Jan-Sep profitability development potential for guidance beat is strong but investments in Q4 are expected to affect profitability. We anticipate a further impact during early 2019 and expect slower EPS growth. Continued increases in new customers support continued robust sales growth. Our 2019E estimates do not give significant support for valuation increases and we retain our HOLD-rating with a target price of EUR 18.5 (18) per share.

Solid earnings, investments to impact from Q4

Talenom’s Q3 results beat profitability expectations, with EBIT at EUR 1.9m vs. EUR 1.0m Evli, improving some 136 % y/y. Sales were in line with expectations, at EUR 11.1m, growing 19.8 % y/y. With Jan-Sep EBIT at EUR 7.1m, the FY 2018 guidance of EUR 7.4-8.0m appears conservative, but investments into the additional services are expected to impact in Q4. We anticipate the investments to continue to show during early 2019. We expect profitability to remain at solid levels but with slower EPS growth, with our 2018E and 2019E EPS growth estimates at 55 % and 6 % respectively.

No signs of larger sales growth slow down

We expect sales growth to remain good, supported by growth in new customers and pick-up in the sales of additional services, mainly in staff leasing. We have mainly made minor estimates adjustments post-Q3 but increase our 2019E sales growth estimates by 2 percentage points. We also raise our DPS estimates, with our FY 2018E estimate at EUR 0.45. Our 2018E sales and EBIT estimates are at EUR 49m and EUR 7.9m respectively.

HOLD with a target price of EUR 18.5 (18)

We retain our HOLD rating with a target price of EUR 18.5 (18). On our estimates and target price Talenom’s 2019E target P/E and EV/EBIT are at 20.5x and 17.3x respectively and do not give support for significant valuation increases.

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