Talenom - Upgrade to BUY

Talenom’s Q4 results were quite in line with our estimates, with net sales and operating profit at EUR 12.5m and EUR 1.5m respectively (Evli EUR 12.6m/EUR 1.3m). Talenom’s guidance exceeded our expectations, with net sales growth expected to remain at 2018 levels (18.0%) and the operating profit margin to increase slightly. We upgrade to BUY (HOLD) with an ex-div TP of EUR 24.5 (19.2)

Upbeat guidance

Talenom’s Q4 results were quite in line with our estimates, with revenue at EUR 12.5m (Evli 12.6m) and EBIT at EUR 1.5m (Evli EUR 1.3m). The dividend proposal is EUR 0.55 per share (Evli EUR 0.50). Talenom’s guidance for 2019 is for net sales growth to remain at a similar pace to 2018 (18.0%) and the operating profit margin to improve slightly (2018: 17.5%), exceeding our expectations of slightly slower sales growth and flattish operating margin development.

Franchising network expansion supporting growth

In absolute figures, net sales growth is mainly expected from new bookkeeping customers. Talenom signed a large number of new franchising contracts during the latter half of 2018, which is expected to increase inflow of new customers during 2019. Growth in other businesses is expected to continue to be rapid, in our view driven largely by staffing services. We expect profitability improvements from further increases in the efficiency of bookkeeping services. We have raised our 2019E and 2020E net sales growth and operating profit estimates by 3%pts/15% and 5%pts/21% respectively. Our 2019E net sales and operating profit estimates are at EUR 57.5m and EUR 10.6m respectively.

BUY (HOLD) with an ex-div target price of EUR 24.5 (19.2)

Talenom trades at a 2019E P/E of 19.8x. We have previously viewed P/E levels of around 20x as reasonable but with the growth expected to remain strong and operating profit margins to increase we justify slightly higher valuation levels. We value Talenom at 21x 2019E P/E for an ex-div target price of EUR 24.5 (19.2) and upgrade to BUY (HOLD).

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