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Administer is seeking an annual profitability improvement of EUR 7m, with profitability in H1 being rather weak. The margin improvement potential supports valuation upside.
Administer’s H1 figures were on par with our expectations. Revenue amounted to EUR 39.2m (Evli EUR 39.0m), with growth of 64.1%. EBITDA amounted to EUR 1.6m (Evli EUR 1.9m). Administer initiated a cost savings programme and change negotiations, seeking an annual profitability improvement of EUR 7m in 2024.
The profitability guidance downgrade creates a near-term setback, but improvement potential still favours valuation upside. We lower our TP to EUR 3.5 (4.0), BUY-rating intact.
Lowered profitability guidance
Administer issued a profit warning on August 8th, lowering its guidance for profitability in 2023. According to the new guidance, the EBITDA-margin in 2023 is estimated to be 4-8% (prev. 7-9%). The net sales guidance of EUR 76-81m remains intact. According to the company, profitability during H1/2023 was burdened by wage inflation and other increased expenses, which the company was not able to fully transfer into customer prices. Administer is preparing a profitability programme, focusing on long-term improvements in profitability and in addition new was to identify additional net sales opportunities.
Profitability improvement path postponed
The revised guidance is an unfortunate dent in the company’s long-term ambitions for improving profitability, as the guidance range suggests that relative profitability more likely will decrease y/y. With the acquisition of Econia, the previous guidance appeared more on the conservative side, and our estimates were previously slightly above the guidance range (net sales EUR 82.4m and EBITDA-margin 9.8%). The company has grown and is expected to grow rapidly also in 2023 due to acquisitions made, and expectations were for operational efficiency and profitability improvements to become an increasing area of focus. We expect an EBITDA-margin of 6.3% in 2023, with EBIT in the red in H1.
BUY with a target price of EUR 3.5 (4.0)
We continue to see clear potential for profitability improvements in the coming years, despite the set-back now seen. Valuation continues to be attractive, an approx. 3%p y/y increase in EBITDA-margins in 2024 on our estimates would imply an ~10x P/E (excl. goodwill amortizations) and EV/sales remains firmly below 1x. With the near-term setback to profitability improvement, however, we lower our target price to EUR 3.5 (4.0), BUY-rating intact.
Administer reported H2 figures a notch above our expectations. The guidance appears rather conservative, and our estimates remain above the guidance range.
H2 figures a notch above our expectations
Administer reported rather good H2 figures and a notch above our expectations. Revenue amounted to EUR 28.9m (Evli EUR 27.4m), with growth of 30.8% driven by acquisitions as well as new customers won by Silta. EBITDA amounted to EUR 2.7m (Evli EUR 2.4m). We had assumed no dividend to paid due to growth ambitions, but the BoD proposed a dividend of EUR 0.05. Although the implied dividend yield is low (~1.5%), the commencing of payments is a positive sign for share expectations given lack of dividends so far.
Guidance appears rather conservative
The guidance for 2023 was surprisingly soft and appears rather conservative. Revenue is expected to amount to EUR 76-81m and the EBITDA-margin to 7-9%. With the acquisition of Econia the run-rate revenue should already be around EUR 80m and the guidance as such imply no or very little organic growth. We have retained our revenue estimate at EUR 82.4m, above the guidance, and expect further acquisitions to also boost growth and a guidance upgrade later on in the year. We have slightly trimmed our EBITDA-margin expectations (9.8%) downwards but still above the guidance range. Administer’s EBITDA-margin in 2022 was at 7.1%, with a weaker H1. Our improvement expectations rely on the in relative terms more profitable Econia and synergies from acquisitions. We note that there is larger uncertainty in our margin expectations due to the lack of proof of significant profitability improvements from operational efficiency.
BUY with a target price of EUR 4.0
With our estimates largely intact, we retain our target price of EUR 4.0 and BUY-rating. Our TP values Administer at approx. 10x EV/EBITA. The potential remains considerable on the 2024 EBITDA-margin target (24% in 2024), but we continue to see Administer still being a long way away from achieving those.
Administer’s H2 figures were slightly better than expected. Revenue amounted to EUR 28.9m (Evli EUR 27.4m), with growth of 30.8%. EBITA amounted to EUR 2.1m (Evli EUR 2.0m). The 2022 dividend proposal is EUR 0.05 per share (Evli EUR 0.00). Guidance for 2023: Revenue EUR 76-81m and EBITDA-margin 7-9%.
Administer reports its H2/2022 results on March 30th. Earnings figures are of lesser interest, the outlook more so with the leap in size and earnings given the acquisition of Econia.
H2 earnings report interest lies on 2023 outlook
Administer reports its H2/2022 results on March 30th. The earnings figures are of lesser interest, with the fiscal year guidance range (revenue EUR 50-52m, EBITDA-% 5.5-7.5%) implying improved relative profitability from the more challenging H1 but still clearly sub-par compared with long-term targets. Of more interest is the outlook for 2023 following the sizeable acquisition of Econia at the end of 2022 and expected ramp-up of the company’s profitability scaling. Technically Administer should on our estimates be able to pay a dividend for FY 2022 but we assume no payout given the focus on growth.
Big leap in size and earnings in 2023
With the acquisition of Econia, Administer is set to take a significant growth leap in 2023. To our understanding the prevailing market conditions have been a lesser nuisance than expected and organic growth initiatives progressed quite well, due to which we raise our 2023 revenue estimate close to the 2024 target of EUR 84m. We have not included further M&A in our estimates, but with continued acquisitions very likely, the target should reasonably be achievable in 2023. We also expect EBITDA to over double compared with 2022, largely due to the in relative terms notably more profitable Econia. The 2024 EBITDA-% target of 24%, however, still appears distant. Synergies from acquisitions provide margin upside, while inorganic growth and operational efficiency should kick in to provide larger potential.
BUY with a target price of EUR 4.0 (3.6)
Valuation compared with peers on our 2023-2024 estimates continues to remain favourable. A discount remains warranted given the yet limited proof of profitability improvement but the current valuation in our view does not reflect the company’s potential. On our adjusted estimates we raise our target price to EUR 4.0 (3.6), BUY-rating intact.
Administer acquired financial and HR administration services specialist Econia, taking a clear leap towards its 2024 net sales target of EUR 84m.
Acquired Econia and adjusted 2022 guidance
Administer announced the acquisition of Econia Ltd. Econia is a company specialised in financial and HR administration and international services operating in 13 locations in Finland and in Fuengirola, Spain. Econia’s pro forma net sales and EBITDA in 2021 were EUR 19.1m and EUR 1.7m, with corresponding predicted 2022 figures at around EUR 25m and EUR 3m. Growth has been aided by acquisitions, but organic growth has to our understanding been solid. The debt-free purchase price of the acquisition is EUR 20m, of which EUR 18m is paid in cash at the time of closing, with an additional purchase price of max. EUR 4m to be paid by June 30th, 2025. The acquisition is funded by IPO proceeds and long-term debt of EUR 13m.
Back on track to achieve growth targets
In conjunction with the acquisition Administer adjusted its 2022 guidance for net sales to EUR 50-52m (prev. 47-49m) and the EBITDA-margin to 5.5-7.5% (5.0-7.0%). The adjustment is purely related to the completed acquisition and according to management no notable deviations in the underlying business have been seen from what was communicated in the H1 earnings release. The acquisition puts Administer well back on track to achieve its 2024 net sales target of EUR 84m, also providing an additional avenue for growth internationally. Econia will also aid near-term profitability and we expect Administer to move to double-digit EBITDA-margins in 2023. Reaching the 2024 target of 24%, however, still requires significant internal actions to improve efficiency.
BUY with a target price of EUR 3.6
Current valuation levels (0.6x 2023e EV/sales) continue to suggest essentially no expectations of improvement potential. We see continued support for margins picking up through acquisition synergies and improved efficiency, although we still find the 24% EBITDA-margin target challenging.
Administer reported better H1 results than we had expected. With on-going uncertainties and challenges we have somewhat dimmed our coming year expectations and lower our TP to EUR 3.6 (4.0), BUY-rating intact.
H1 results better than anticipated
Administer reported better H1 results than we had anticipated. Net sales in H1 amounted to EUR 23.9m (EUR 21.9m in H1/21) (Evli EUR 21.9m) and grew 20.5% y/y driven by acquisitions. Net sales were burdened by the impacts of general economic uncertainty on customer activity as well as by the customer losses in Adner in 2021. EBITDA amounted to EUR 1.0m (Evli EUR 0.5m), at a margin of 4.2%. Profitability was burdened by higher than anticipated overlapping costs for the old and new system stemming from Administer’s subsidiary Adner’s system reform.
Somewhat dimmed expectations for coming years
Administer remained on track on its inorganic growth strategy, with five acquisitions announced/completed YTD (2022 target 5-10). Investments are being made into technology and strengthening the organization as part of the strategy. Administer lowered its guidance on August 12th, expecting net sales of EUR 47-49m and an EBITDA-margin of 5-7%. Our estimates remain at the midpoint of the guidance ranges. We have somewhat lowered our 2023 expectations, still expecting rapid, largely inorganic growth. We expect profitability to improve because of a lower impact of Adner’s system reform and small overall improvements. With the current uncertainties we expect a more normalized run-rate level of profitability in 2023, while further profitability improvements through Administer’s strategy and acquisition synergies appears more distant.
BUY-rating with a target price of EUR 3.6 (4.0)
Administer currently trades clearly below peers. We have and continue to see a clear discount as warranted given recent year challenges and rather low profitability. Current valuation levels (0.6x 2022e EV/sales), however, suggest little to no improvement potential. With somewhat lowered expectations for coming years, we adjust our TP to EUR 3.6 (4.0), BUY-rating intact.
Administer’s H1 figures were better than expected. Revenue amounted to EUR 23.9m (Evli EUR 21.9m), growing 20.5% mainly due to completed acquisitions. EBITA amounted to EUR 0.6m (Evli EUR 0.1m), adversely affected by Administer’s subsidiary Adner’s system reform but still better than anticipated.
Administer lowered its guidance for net sales and profitability in 2022. The mid-term potential remains but with the near-term uncertainty we lower our TP to EUR 4.0 (4.7), BUY-rating intact.
Net sales and profitability seen to be weaker than expected
Administer issued a profit warning on Friday, Aug 12th. The company now expects 2022 net sales of EUR 47-49m (prev. >EUR 51m) and an EBITDA-margin of 5-7% (prev. >8%). The lowering of the guidance is based upon the general economic uncertainty and the impact on customer activity. Higher than anticipated overlapping costs for the old and new system stemming from Administer’s subsidiary Adner’s system reform have also impacted profitability negatively during the current year. In addition, net sales from system consulting and expert services in connection with EmCe’s client projects have been slightly lower than the company had expected.
Organic growth and transactional volumes a concern
We have for now adjusted our estimates towards the mid-range of the new guidance and our 2022 EBITDA estimate is as such down by near 40%. In our view the lower customer activity due to the general economy is of more concern, as costs relating to the system reform should ease at some point and we hypothesize that the lower project-based revenue may at least partially be due to higher sick-leaves that have been seen in Finland during H1 due to the pandemic. Administer reports its H1/2022 results on August 31st. Inorganic growth plans have progressed according to communicated plans, with four acquisitions so far during 2022, and our interest in the results will be primarily oriented towards the noted factors affecting growth and the development of organic growth ambitions.
BUY-rating with a target price of EUR 4.0 (4.7)
Administer’s 2022 financials were known to be sub-par in 2022 due to previous challenges but the guidance downgrade brings an unfortunate dent in the growth and profitability trajectory. The company’s mid-term potential remains, but with the noted challenges we lower our TP to EUR 4.0 (4.7), BUY-rating intact.
Administer reported H2 results and a gave a guidance that were well in line with our expectations and we as such see no need to revise our estimates or views. We retain our TP of EUR 4.7 and BUY-rating.
H2 well in line with expectations
Administer reported H2 results well in line with expectations. Revenue grew 3.2% y/y to EUR 22.0m (Evli EUR 22.1m) driven by the acquisition of EmCe. EBITDA and EBIT amounted to EUR 1.7m and EUR 0.3m respectively (Evli EUR 1.6m/0.4m). Profitability was affected by the company’s investments into growth and technological development. With the net result affected by IPO related expenses and as such being clearly negative, the BoD proposed that no dividends be paid for FY 2021 (Evli EUR 0.00).
Seeking to clearly pick up growth
Administer reiterated the earlier communicated outlook for 2022, expecting revenue to grow to over EUR 51m and to achieve and EBITDA-margin of at least 8%. With the H2 results and the guidance corresponding to our expectations, along with no significant changes to our views on Administer’s potential, we make no notable changes to our estimates. We expect 2022 revenue of EUR 52.1m and an EBITDA-margin of 9.2%. Current estimate uncertainty mainly stems from growth expected to be driven by acquisitions, with Administer seeing 5-10 acquisitions being made during 2022. Near-term profitability improvements should mainly arise from a lesser impact of challenges faced during 2021, with expectations of measures to improve operational efficiency and synergies from acquisitions to start to show from 2023 onwards.
BUY-rating with a target price of EUR 4.7
With our views and estimates essentially intact we retain our BUY-rating and target price of EUR 4.7. On our estimates current valuation implies a 2022e EV/sales of 0.7x, which in our view does not account for the improvement potential, albeit we acknowledge that Administer has yet to prove its worth.
Administer’s H2 figures were well in line with our expectations, with revenue of EUR 22.0m (Evli EUR 22.1m) and EBITA of EUR 1.3m (Evli EUR 1.3m). Administer expects revenue in 2022 to grow to at least EUR 51m and an EBITDA-margin of at least 8%. The BoD proposes that no dividend be paid for FY 2021 (Evli EUR 0.00).
Administer is one of the leading providers of financial management by revenue and HR & payroll services by number of pay slips in Finland seeking rapid growth and clear profitability improvements supported by M&A activity.
Seeking rapid and profitable M&A supported growth
Administer is one of the leading providers of financial management and HR & payroll services in Finland. Founded in 1985, the company has grown rapidly in recent years through acquisitions and today employs around 600 employees. Administer is in its strategy seeking to continue growth inorganically as well as boosting organic sales growth through investments into its sales organization and looking to clearly improve its profitability through growth, synergies from acquired companies and through enhancing the efficiency of own operations. The company targets revenue of EUR 84m and an EBITDA-margin of at least 24% in 2024.
Set to return to rapid growth in 2022
Administer’s recent financial performance has been affected by the pandemic, a loss of several larger customers in its subsidiary Adner and growth investments and reported figures have so far during 2021 declined y/y. A clear pick-up in growth is seen in 2022, aided by the acquisition of financial administration SaaS solutions provider EmCe, with profitability also set to recover with a reduction in the impact of previously noted challenges. The company’s growth and profitability potential is in our view considerable but the potential realization is still a long way away.
Initiate coverage with buy-rating and TP of EUR 4.7
We initiate coverage of Administer with a target price of EUR 4.7 and BUY-rating. In deriving our target price for Administer we rely mainly on peer multiples and further compile a scenario analysis to illustrate the impact the company’s financial targets, should they materialize, could have on the value. Our target price values Administer at 1.2x 2022e EV/sales and 16.6x 2022e EV/EBITA, near the lower end of peer multiples, which we currently consider fair as Administer’s financial performance is still quite clearly sub-par.
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