Talenom - Upgrade to buy

Gave guidance for 2020

Talenom’s net sales in Q3 amounted to EUR 13.5m (Evli 14.2m) and operating profit to EUR 2.4m (Evli 2.5m). A decision to focus staffing services on supporting the core accounting business saw staffing services volumes decline but its profitability improving, although the impact on group figures is minor. Discontinuation of annual payroll reports due to the change in income register will smooth some seasonal variation, with H1 figures expected to gain at the expense of H2 figures. Talenom further gave a guidance for 2020, expecting net sales growth and relative profitability to be in line with 2019.

2019 estimates slightly lower, 2020 largely unchanged

We have lowered our 2019 estimate for net sales to 58.1m (prev. 59.9m) to account for the changes in billing of payroll reports and also seeing some overoptimism in our year end estimates. We expect Talenom to still be able to slightly improve relative profitability in 2020 driven by development of the new bookkeeping production line and scalability. Our 2020-2021 estimates overall remain largely unchanged, as some of the expected net sales growth was shifted to 2020. We expect a sales growth of 19% and EBIT-% of 20.7% in 2020.

Upgrade to BUY (HOLD) with a TP of EUR 37.5 (36.0)

With the added visibility given by the guidance for 2020, we are prepared to set our sights towards 2020. With the narrative of Talenom’s profitable growth story largely unchanged we raise our target price to EUR 37.5, valuing Talenom at a target 2020 P/E of ~24x. With our target price increase and share price declines since our last update we upgrade our rating to BUY.