Fast growing technology driven accounting services company
Talenom reported Q2 figures quite in line with expectations. With the on-going solid momentum, we have raised our 2022-2023 sales growth estimates, expecting continued solid double-digit growth. We adjust our target price to EUR 15.0 (13.3) and retain our HOLD-rating.
No major surprises in Q2 figures
Talenom reported its Q2 results, which were quite in line with expectations. Revenue grew 29.6% to EUR 21.4m (EUR 21.0m Evli/cons.). Of the growth during H1/21 around two-thirds were inorganic and the rest organic growth. The operating profit improved 15% y/y to EUR 4.1m but was slightly below expectations EUR 4.3m/4.4m Evli/cons.). Guidance remains intact, with net sales expected to amount to EUR 80-84m and operating profit to amount to EUR 14-16m. During the review period Talenom announced its expansion to Spain through the acquisition of accounting firm Avail Services SL and continued to grow through acquisitions in Finland and Sweden.
Growth prospects looking as good as ever
Growth in Q2 continued strong and a positive remark was the continued sign of improvement in organic growth, with new customer acquisitions having recovered to pre-pandemic levels. Talenom has also seen good traction in the new small customer concepts, which we expect to pick up further once all steps have been taken to enable acceleration of growth. Our 2021 estimates remain mostly intact, but we have raised our 2022 and 2023 revenue estimates by 8% and 13% respectively, expecting continued inorganic growth and improved organic growth supported by accelerated new customer sales and sales from consulting work. We expect revenue of EUR 82.4m and EBIT of EUR 15.0m respectively (co’s guidance 80-84m and 14-16m).
HOLD-rating with a target price of EUR 15.0 (13.3)
With the solid momentum in sales growth, we raise our target price to EUR 15.0 (EUR 13.3) and retain our HOLD-rating. Valuation remains a challenge, with 2022e P/E of ~52x, but a case like Talenom is hard to come by and the outlook in terms of profitable growth remains clearly positive.
Talenom's net sales in Q2 grew 29.6% to EUR 21.4m, in line with our and consensus estimates (EUR 21.0m Evli/cons.). EBIT amounted to EUR 4.1m, slightly below our and consensus estimates (EUR 4.3m/4.4m Evli/cons.).
Talenom is more strongly seeking to supplement its organic growth strategy with inorganic growth, supported by the favourable market conditions. Near-term margin upside appears limited due to the increased M&A activity, but margins are set to remain healthy. We retain our HOLD-rating and adjust our target price to EUR 13.3 (12.0).
Organic growth supplemented by acquisitions
Talenom has in the past years focused clearly on organic growth and achieved double-digit growth figures in doing so. With favourable conditions for acquisitions Talenom is now clearly seeking to supplement the organic growth, which has slowed down slightly due to the pandemic, with inorganic growth. With the acquisitions made so far during 2021 we expect growth of 25.2% y/y and a sales CAGR of 16% during 2020-2023E, not including any likely new acquisitions.
Healthy margins but M&A limits near-term upside
Talenom has invested heavily in improving the efficiency of its bookkeeping production line. Through digitalization and automation of bookkeeping tasks and processes the company has been able to better allocate personnel resources, resulting in sizeable improvements in margins. We expect further development to be limited in the near-term due to the increased M&A activity, with the typically lower margins of acquirees and integration costs burdening profitability. Likely future efficiency improvements and thus profitability should also be of smaller magnitude, with a larger share of actions already taken.
HOLD with a target price of EUR 13.3 (12.0)
We retain our HOLD-rating and adjust our target price to EUR 13.3 (12.0). Our target price values Talenom at 50x 2021E P/E. Valuation is certainly not on the cheaper side but the multi-year track of rapid growth and profitability improvement along with the very defensive nature of the business and pick-up in M&A activity in our view justify the high valuation.
Talenom's net sales in Q1 grew 17.0% to EUR 20.3m, in line with our and consensus estimates (EUR 19.9m/20.3m Evli/cons.). EBIT amounted to EUR 4.4m, in line with our and consensus estimates (EUR 4.4m/4.3m Evli/cons.).
Talenom acquired Balance-Team Oy, a specialist in financial management for associations, and raised its 2021 sales guidance to EUR 80-84m (prev. EUR 78-82m). We now expect growth of 24.6% in 2021. We retain our HOLD-rating with a target price of EUR 12.0 (11.5).
Acquired Balance-Team Oy and raises sales guidance
Talenom expands its operations in Finland by acquiring Helsinki-based Balance-Team Oy, a specialist in financial management for associations. The acquisition will make Talenom a leading provider of financial management services for nonprofit organisations in Finland. The sales and EBITDA in 2020 of the transferring operations were EUR 2.7m and EUR 1.0m respectively. The share capital of the transferring operations was transferred to Talenom on April 15th. The transaction price is EUR 5.3m, implying an approx. price of 5.0x EV/EBITDA on 2020 figures, to be paid 50/50 in cash and shares. Due to the acquisition Talenom raises its sales guidance for 2021 from EUR 78-82m to EUR 80-84m. The EBIT guidance (EUR 14-16m) remains intact.
Rapid growth in 2021 with our estimate at 24.6%
The guidance revisions did not come as a major surprise given the guidance being raised already in March due to acquisitions, while the EBIT guidance quite as expected remains intact. The pace of acquisitions has been rapid so far during H1 and a further guidance revision is not completely unlikely if the pace continues. We have adjusted our 2021 sales estimate to EUR 81.2m, implying a growth of 24.6%, with our EUR 15.3m EBIT estimate intact. Talenom reports Q1 results on April 26th, with our sales and EBIT estimates at EUR 19.9m and EUR 4.4m respectively.
HOLD with a target price of EUR 12.0 (11.5)
In light of the accelerating growth pace we adjust our target price to EUR 12.0 (11.5) and retain our HOLD-rating. Our target price values Talenom at approx. 45x 2021 P/E, which we see as justifiable given the stability of the business and the rapid profitable growth.
Talenom announced the acquisition of two accounting firms in Sweden and raised its net sales guidance to EUR 78-82m (prev. EUR 75-80m). We retain our HOLD-rating and target price of EUR 11.5.
Two acquisitions in Sweden, net sales guidance raised
Talenom continues to expand in Sweden by acquiring accounting firms Crescendo AB and Progredo AB and raised its net sales guidance for 2021. The acquired businesses had combined net sales of EUR 2.3m in 2020 and operating profit of EUR 0.3m. With the acquisitions Talenom expands to two new municipalities in Sweden, Östersund and Åre. As a result of the acquisitions Talenom raised its net sales guidance to EUR 78-82m (prev. 75-80m). The acquired businesses will be transferred to Talenom on April 1st, 2021. The acquisitions will not increase operating profit in the short term due to integration costs and the depreciation of the transaction and the operating profit guidance remains intact at EUR 14-16m. The purchase price at maximum corresponds to 1.1x and 8.0x net sales and EBIT respectively.
Minor increase to sales estimates
We have raised our 2021 net sales estimate to EUR 78.9m (prev. 76.7m) due to the acquisition and an overall minor increase in net sales expectations, with our operating profit estimate intact at EUR 15.3m. With the net sales guidance being revised this early on in the year, potential further acquisitions could likely prompt further revisions later on during the year, although the impact on earnings would likely not be as significant. The increased growth through the acquisitions, however, provide an additional base for continued organic growth and ramp up of operations in Sweden in the coming years.
HOLD-rating and target price of EUR 11.5
With only rather minor revisions to our estimate revisions we retain our target price of EUR 11.5 and HOLD-rating. Our target price values Talenom at approx. 43.5x 2021e P/E.
Talenom’s Q4 was rather well in line with our expectations and with our 2021 estimates corresponding well with the guidance our estimates remain largely intact. Preparations for continued growth remain on the agenda. Our target price remains unchanged at EUR 11.5, our rating is now HOLD (SELL).
Q4 report rather well in line with expectations
Talenom’s Q4 report all in all was rather well in line with our expectations. Net sales amounted to EUR 16.5m (Evli EUR 16.8m) and operating profit to EUR 2.4m (Evli EUR 2.6m). The BoD proposes a dividend distribution of EUR 0.15 per share (Evli EUR 0.15). In 2021 the company expects net sales to amount to EUR 75-80m and operating profit to amount to EUR 14-16m (Evli prev. est. EUR 77.3m and EUR 15.5m respectively). Further acquisitions during 2021 could still see net sales grow past the guidance range, while the typically lower profitability of acquisition objects should limit earnings growth potential.
Preparations and build up for future growth
We have made only minor revisions to our estimates. The year 2021 will to quite some extent be a year of preparing and building up the new growth avenues. Organic growth figures should still be somewhat weaker, but the company sees potential for sales efforts in 2021 to pave the way for better figures in 2022. The small customer concept rollout has progressed quite as planned and the launch in Sweden during 2021 also remains on schedule. We see a limited impact of the new concept on sales in 2021. No new relevant information on the plans to further expand internationally was given.
HOLD (SELL) with a target price of EUR 11.5
Our estimates at large remain intact post-Q4 and we make no adjustment to our target price of EUR 11.5. Our TP values Talenom at approx. 43x 2021 P/E. After the minor share price correction our rating is now HOLD (SELL).
Talenom's net sales in Q4 grew 10.4% to EUR 16.5m, in line with our and consensus estimates (EUR 16.8m Evli/cons.). EBIT amounted to EUR 2.4m, slightly below our and consensus estimates (EUR 2.6m Evli/cons.). Net sales for 2021 are expected to amount to EUR 75-80m and operating profit to EUR 14-16m.
Talenom’s Q4 results should not contain any major surprises and our sights are set on information on 2021 expectations. Recent acquisitions support continued growth in 2021, with our growth estimate at 18%.
Good finish to year expected
Talenom will report Q4 results on February 8th. We expect revenue of EUR 16.8m (Q4/19: 14.9m) and EBIT of EUR 2.6m (Q4/19: 1.5m). Our respective FY2020 estimates are EUR 65.5m and EUR 13.1m, with co’s guidance at EUR 64-68m and 12-14m respectively. With the predictability in revenue streams and the CMD held in November we do not expect any major surprises and the guidance for 2021 will be of most interest. We expect Talenom to propose a dividend distribution of EUR 0.15 per share (2019 EUR 0.125 adj.).
Acquisitions providing growth boost for 2021
Talenom announced the acquisitions of two accounting firms in Sweden earlier on in Q4 and of acquisitions in Finland in February. The total combined net sales of these acquisitions amounted to roughly EUR 4.5m, providing a good start for growth in 2021. We had already assumed a pickup in inorganic growth and have made only minor adjustments to our estimates. We expect revenue growth of 18.0% in 2021, driven to a larger extent by acquisitions. Talenom has noted that organic growth domestically has been more challenging, and the current environment and digitalization needs offer opportunities for growing inorganically.
SELL (HOLD) with a target price of EUR 11.5 (10.2)
Talenom’s share price has increased some 16% since our previous update and on our estimates now trades at 2021 P/E of close to 50x. Talenom has a solid multiyear track of rapid profitable growth, but with some uncertainty in the somewhat different growth approach and organic growth slowdown we find the current valuation hard to justify. We adjust our target price to EUR 11.5 (10.2), valuing Talenom at 43x and 38x 2021E and 2022E P/E respectively and downgrade our rating to SELL (HOLD).
Talenom’s CMD provided an all-around update with limited new information given the announcements in Q3. The core business continues to perform well, and further automation of the accounting production line is sought, while domestic growth is increasingly driven by acquisitions.
Largely business as usual
Talenom held its Capital Markets Day on November 11th. Having already announced the new small customer concept and potential plans to expand in Europe in conjunction with the Q3 report the CMD in our view offered rather limited new information, mainly adding some more details to the aforementioned matters. Focus is being set on further increasing the degree of automation in the accounting production line, with a target of over 90% in 2023, currently slightly over 70%. The performance of the core business remains solid and customer acquisition is holding up quite well given the circumstances. Talenom is domestically clearly adding emphasis on inorganic growth, with the digitalization challenges faced by small accounting firms providing opportunities for acquisitions.
New growth avenues with the long-term in mind
Talenom gave some insight into its approach for a potential expansion in Europe and has clearly given it some serious thought. The plans are clearly intended for continued growth in the long-term and any notable revenue during 2021-2022 would most likely be due to acquisitions in a similar manner to the Swedish market entry. The TiliJaska small customer concept is expected to leave beta and add on bank services in Finland during February-March 2021 and enter beta in Sweden in mid-2021. The interest for the system has to our understanding so far clearly exceeded expectations.
HOLD with a target price of EUR 10.2
We have not made revisions to our estimates based on the CMD. We expect 2020 revenue and EBIT of EUR 65.5m and 13.1m respectively (co’s guidance EUR 64-68m and EUR 12-14m respectively). We retain our HOLD-rating and target price of EUR 10.2.
Talenom reported solid Q3 figures despite slight sales weakness. Attention was drawn to the new small customer concept, with the for us surprising addition of banking services. Although still in its infancy, the concept in our view appears promising.
Solid profitability, slight COVID-19 sales weakness
Talenom reported solid Q3 results. Revenue was slightly weaker than expected, at EUR 14.8m (Evli/cons. EUR 15.3m/15.2m), as the pandemic has a slight impact on transaction volumes. Cost control however aided profitability and the EBIT of EUR 3.1m beat expectations (Evli/cons. EUR 2.6m/2.8m). The financial figures were clearly of lesser interest in the earnings report as focus lied on the new small customer concept.
Seeking to cater previously underserved customer segment
Talenom launched a new small customer concept, the TiliJaska service, a free accounting system, as well as Talenom Light Entrepreneur, designed for the smallest, previously by Talenom underserved customers. Costs for the system arise with usage after a certain threshold. The product is intended to broaden the service offering and attracting growing enterprises to Talenom’s bookkeeping services but also to be a profitable product in itself. The product will be in beta until the end of the year and is also planned to be launched next year in Sweden. A potentially very interesting and unexpected new angle was the addition of banking services. In our view the service, or essentially the idea of in the long-run potentially creating a much broader service platform, view has clear potential. Talenom also mentioned that it is looking into other markets in Europe, but we see it as too early to make any assumptions regarding such expansion.
HOLD with a TP of EUR 10.2 (8.5)
Talenom’s valuation continues to be stretched but with the interesting new sales growth potential and more light to be shed on the new services in the upcoming Capital Markets Day (November 11th), we can justify to stay along for the ride. We adjust our TP to EUR 10.2 (8.5), valuing Talenom at a 2020 P/E of 45x, and retain our HOLD-rating.
Talenom's net sales grew 10.0% in Q3 to EUR 14.8m, slightly below our and consensus estimates (EUR 15.3/15.2m Evli/cons.). EBIT amounted to EUR 3.1m, above our and consensus estimates (EUR 2.6m/2.8m Evli/cons.). Guidance remains intact, net sales for 2020 are expected to amount to EUR 64-68m and operating profit to EUR 12-14m.
Talenom’s Q2 results fell slightly shy of expectations, with the coronavirus pandemic having had some impact on transaction-based invoicing volumes, but relative profitability remained solid. Talenom’s potential remains unchanged, which has been reflected in its share price and valuation is becoming rather stretched. We retain our HOLD-rating with a target price of EUR 8.5 (7.0).
Minor impact from COVID-19 but profitability still strong
Talenom’s Q2 results fell slightly shy of expectations, with revenue of EUR 16.5m (EUR 17.2m Evli/cons.), affected by a decrease in transaction-based invoicing in for instance payroll services due to customer layoffs. EBIT amounted to EUR 3.6m (EUR 3.7m Evli/cons.) and relative profitability remained on par with expectations, with an EBIT-margin of 21.8%. The new small customer concept is expected to be released later on in the year and long-term potential expectations appear to be high. The impacts of the coronavirus overall have been quite in line with company expectations.
Continued growth and profitability improvement in 2020
Talenom’s guidance for 2020 (net sales EUR 64-68m, EBIT 12-EUR 14m) remains intact and should in our view not be in jeopardy unless a clearly unfavourable development in transaction-based invoicing volumes is seen during H2. We expect net sales of EUR 66.3m and EBIT of EUR 12.4m. Growth potential remains intact, with emphasis seen to be shifting towards M&A and Sweden as well as smaller customers as regional coverage in Finland limits growth. We assume a relative lower profitability of potential acquisitions to limit some margin upside in the coming years.
HOLD with a target price of EUR 8.5 (7.0)
Talenom’s share price has risen to record-high levels, with the stability of the business providing benefits under current market uncertainty and valuation levels are becoming harder to justify. We raise our target price to EUR 8.5 (7.0), valuing Talenom at ~40x 2020E P/E, which we still consider reasonable given growth potential and the defensive nature. Our rating remains HOLD.
Talenom's net sales in Q2 amounted to EUR 16.5m, slightly below our and consensus estimates (EUR 17.2m Evli/cons.). EBIT amounted to EUR 3.6m, in line with our and consensus estimates (EUR 3.7m Evli/cons.). Guidance remains intact, net sales for 2020 are expected to amount to EUR 64-68m and operating profit to EUR 12-14m.
Talenom’s Q1 results slightly beat our expectations, with net sales of EUR 17.4m (Evli 16.9m) and EBIT of EUR 3.7m (Evli 3.5m). Net sales and EBIT guidance for 2020 was set at EUR 64-68m and 12-14m respectively. Growth outlook remains favourable and any plausible impact from the coronavirus pandemic for now appears limited. We adjust our target price to EUR 7.0 (6.7), HOLD-rating intact.
Q1 slightly better than expected
Talenom’s Q1 results were slightly better than expected. Net sales grew 17.4% to EUR 17.4m (Evli 16.9m) and EBIT amounted to EUR 3.7m (Evli 3.5m). Talenom gave a numeric guidance for 2020, expecting net sales of EUR 64-68m and EBIT of EUR 12-14m. Sales plans have progressed almost in line with plans despite the coronavirus pandemic. Investments are being made to customer interfaces and plans for a new concept for small customers were floated, which sounds promising but will likely have little sales impact before 2021. Additional financing of EUR 10m was secured for acquisitions and growth projects in Finland and Sweden.
Near-term risks limited
Our post-Q1 estimates revisions are minuscule and we expect 2020E net sales and EBIT of EUR 67.3m and EUR 12.5m respectively. Near-term risks due to the pandemic are limited, with transactional volumes possibly affected. A prolonged situation and an increase in defaults would have a heavier impact on 2021 due to customer bookkeeping obligations. The resilience of the bookkeeping market is noteworthy, and the near-term uncertainty may open more opportunities for inorganic growth.
HOLD with a target price of EUR 7.0 (6.7)
Talenom remains an attractive investment case through its track-record and defensive nature, valuation slightly less so, with the share price essentially at pre-COVID levels. We adjust our target price to EUR 7.0 (6.7), valuing Talenom at ~32x 2020E P/E, and retain our HOLD-rating.
Talenom's net sales in Q1 amounted to EUR 17.4m, slightly above our and consensus estimates (EUR 16.9m/17.0m Evli/cons.). EBIT amounted to EUR 3.7m, slightly above our and consensus estimates (EUR 3.5m/3.5m Evli/cons.). Net sales for 2020 are expected to amount to EUR 64-68m and operating profit to EUR 12-14m.
Talenom made a share issue without payment on the 28.2. to improve share liquidity, with five new shares for each existing share, after which the nr. of shares amounts to 41.836m. We adjust our target price to EUR 6.7 (prev. split adj. EUR 6.83) accounting for dividend distribution (split. adj. EUR 0.125 per share) and retain our HOLD-rating.
Share issue without payment to improve share liquidity
Talenom made a share issue without payment on the 28.2. to improve the liquidity of its share, with five new shares given for each existing share, upon which the number of shares increased to 41.836m (6x pre-issue). We have since our previous update adjusted our quarterly estimates due to the impact of the Income Register, which based on discussion with management should be just below double the Q4/19 impact and we have as such lowered our Q1/20 revenue and EBIT estimates by EUR 0.6m, while upward adjustments to the latter quarters in the year keep our full year estimates intact. Talenom announced the acquisition of Addvalue Advisors on the 28.2., a bookkeeping company with around EUR 0.5m in revenue. The acquisition has no material impact on our estimates.
Growth and profitability improvement in 2020
Talenom expects relative growth in net sales and relative profitability in 2020 to be in line with 2019. We expect revenue in 2020 to grow 18.7% to EUR 68.8m mainly due to organic growth in Finland, with revenue growth in Sweden in our view expected to start to show in 2021. We expect EBIT to amount to EUR 12.6m, with growth of ~21% y/y.
HOLD with a target price of EUR 6.7
We adjust our target price to EUR 6.7 (prev. split adj. EUR 6.83), taking into account the distribution of dividend (record date 27.2., split adj. EUR 0.125 per share). Our target price values Talenom at ~30x 2020E P/E. With valuation in line with our estimates we retain our HOLD-rating.
Talenom’s Q4 results fell below our expectations, with EBIT at EUR 1.5m (Evli 2.6m), driven by higher than anticipated D&A and the impact of the introduction of the Incomes Register. The impact of growth investments on profitability in 2020 appears somewhat larger than previously anticipated and we have lowered our 2020-2021E EBIT estimates by ~10%. We raise our TP to EUR 41 (37.5) but downgrade to HOLD.
EBIT in Q4 clearly below expectations
Talenom’s Q4 results were below our expectations. Revenue grew 19.8% to EUR 14.9m (Evli 15.1m), while EBIT amounted to EUR 1.5m (Evli 2.6m). Compared with our estimates the difference was largely due to higher than anticipated D&A and introduction of the Incomes Register. D&A expenses increased as depreciation of the latest implementations of the bookkeeping line began in Q4. One-off items were limited although year-end reviews to our understanding also affected the elevated expenses.
Growth investments pressuring margin improvements
Talenom’s expects relative growth in net sales and relative profitability in 2020 to be in line with 2019. We see that margin improvement potential remains possible in 2020 through enhanced operational efficiency in acquired businesses and from the bookkeeping line improvements. More importantly, Talenom is in our view seeking to maintain momentum on growth and targeting geographical expansion and growth in smaller customer segments domestically as well as growth pick-up in Sweden. Talenom also emphasized focus on customer retention and satisfaction. With growth investments expected to increase we now only expect a 0.4pp EBIT-margin improvement and sales growth of 18.9% in 2020.
HOLD (BUY) with a target price of EUR 41 (37.5)
Talenom is in our view continuing on a healthy long-term track. We have lowered our 2020-2021E EBIT estimates by around 10%. With the outlook still remaining solid we raise our target price to EUR 41 (37.5), valuing Talenom at 30x 2020E P/E. With the share price having picked up we downgrade to HOLD (BUY).
Talenom’s Q4 results were below our expectations due to a miss on profitability. Net sales amounted to EUR 14.9m (Evli/cons. EUR 15.1m) while the operating profit amounted to EUR 1.5m (Evli/cons. EUR 2.6/2.4m). Talenom reiterated its guidance for 2020, expecting relative growth and relative profitability to be in line with 2019. Talenom proposes a dividend of EUR 0.75 (Evli/cons. 0.74/0.71).
Talenom continued to post solid growth and profitability figures in Q3, with revenue slightly below our optimistic estimates. Talenom gave a guidance for 2020, expecting net sales growth and relative profitability to be in line with 2019, rather similar to our expectations. With the added visibility given by the guidance we set our sights towards 2020, raising our target price to EUR 37.5 (36.0) and upgrade to BUY (HOLD).
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.
Talenom’s first quarter results were slightly below our expectations. Net sales amounted to EUR 13.5m (EUR 14.2m Evli) while the operating profit amounted to EUR 2.4m (EUR 2.5m Evli). Talenom reiterated its guidance for 2019 and gave a financial outlook for 2020, expecting growth and relative profitability to be in line with 2019.
Talenom’s top- and bottom-line figures in Q2 were quite in line with our estimates, and the larger piece of news was the change of CEO. We have made mostly minor upwards revisions to our estimates due to acquisitions and a faster than anticipated implementation of new automation procedures to the bookkeeping automation line. With valuation becoming stretched due to share price inclines we downgrade to HOLD (BUY) with a TP of EUR 36.0 (35.0)
Earnings in line, CEO to change
Talenom’s Q2 earnings did not deliver any major surprises, with net sales of EUR 14.8m (Evli 14.4m) and EBIT of EUR 3.2m (Evli 3.2m) well in line with our estimates, with the main news being the change of CEO. Otto-Pekka Huhtala (former deputy CEO) has started as CEO as of the 29.7.2019. Talenom gave a limited update on the Talenom Financing Services, having provided EUR 31m financing during H1/19. The potential for the service area remains promising but we expect an insignificant near-term impact.
Estimates revisions mostly minor
We have made minor upwards revisions to our estimates, with only minor adjustments to our 2019 estimates, now expecting 2019 sales of EUR 59.9m and EBIT of EUR 11.7m. We have made slight adjustments to sales estimates to account for the Wasa Tilit and WT Företagstjänster acquisitions, also raising our 2020E sales growth estimate by 2pp to 18%. Talenom has also started to implement the new instance of automation, thus eliminating dependencies to other third-party accounting software. The implementation schedule is ahead of our previous estimates, prompting a minor adjustment to our H2/19 earnings estimates.
HOLD (BUY) with a target price of EUR 36.0 (35.0)
Talenom has enjoyed substantial share price inclines and although Talenom on our estimates is set to continue to deliver solid sales and earnings growth, valuation is becoming a stretch. Our target price and estimates value Talenom at a 2019 P/E multiple of 28.5x, which we still consider justifiable. We downgrade our rating to HOLD (BUY).
Talenom’s Q2 results were well in line with our estimates, with revenue at EUR 14.8m (Evli EUR 14.4m) and EBIT at EUR 3.2m (Evli EUR 3.2m). Talenom also reported that its CEO will change, with deputy CEO Otto-Pekka Huhtala taking over as CEO from the 29.7.2019.
Talenom has seen success in achieving well above market growth while simultaneously vastly improving profitability, relying on technological advances to automate processes and enhance efficiency. We continue to see room for near-term margin improvement, while the fragmented bookkeeping services market offers continued room for growth.
Focusing on rapid organic growth
Talenom has taken a different approach from the mainly inorganic growth focused competitors in the fragmented bookkeeping services market by successfully focusing on organic growth, having achieved a sales CAGR of 14% during 2015-2018. Growth has been enabled by Talenom’s separation of accountants and sales force, which we expect to continue supported by benefits of digitalization and the market fragmentation. We expect a sales CAGR of 17% during 2018-2021E.
Margin improvements from process efficiency
Talenom has invested heavily in improving the efficiency of its bookkeeping production line. Through centralization of bookkeeping tasks and automation of processes the company has been able to decrease resource needs, resulting in sizeable improvements in margins. We expect further development in 2019 to give a slight boost to margins, with our 2019E operating profit margin estimate at 19.5% (2018: 17.5%).
BUY with a target price of EUR 35.0
We retain our BUY rating and target price of EUR 35.0. Our target price values Talenom at 27.5x 2019E P/E, slightly above our business support services peer group, which we consider warranted due to the highly recurring nature of revenue and stability of the bookkeeping services market. The high valuation is further supported by earnings growth through both sales growth and margin improvements (Evli 2019E sales growth +20.9% and EBIT margin +2 %p).
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.
Talenom’s first quarter results were quite in line with our expectations. Net sales amounted to EUR 14.8m (EUR 14.7m Evli) while the operating profit was slightly above our estimates, at EUR 3.4m (EUR 3.2m Evli). The guidance was revised already earlier during Q1 and Talenom expects net sales growth to be greater than in 2018 and the operating profit margin to improve compared to 2018.
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)
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).
Talenom’s fourth quarter results were quite in line with our expectations. Net sales amounted to EUR 12.5m (EUR 12.6m Evli) while the operating profit beat our estimates slightly, at EUR 1.5m (EUR 1.3m Evli). The dividend proposal for 2018 is EUR 0.55 per share (EUR 0.50 Evli). Talenom expects net sales growth to continue at a similar pace as in 2018 (18.0%) and the operating profit margin to improve slightly compared to 2018.
Talenom raised its guidance for FY2018 EBIT, expecting EBIT to be in the range of EUR 8.2-8.7m. The raised guidance is mainly due to increased operational efficiency through technological improvements and to our understanding also due to some postponement of investments in the company’s internationalization plans. We retain our HOLD-rating with a target price of EUR 19.2 (18.5).
Guidance for 2018 EBIT raised
Talenom raised its guidance for FY2018 EBIT, expecting EBIT to be in the range of EUR 8.2-8.7m (prev. EUR 7.4-8.0m). The sales guidance remains intact, with sales growth expected to clearly exceed previous year levels. The improved profitability outlook is mainly due to increased operational efficiency through technological improvements. To our understanding some investments relating to the company’s internationalization plans were postponed, which we expect in part to have contributed to the raised guidance. Our revised 2018 EBIT estimate is at EUR 8.4m.
Remain cautious to margin improvement
We continue to remain cautious to margin improvement in the near term. Talenom still has room to improve margins through enhanced operational efficiency. We continue to expect Talenom to establish a presence outside Finland next year, most likely in Sweden, which would put some pressure on margins through up-front personnel costs.
HOLD with a target price of EUR 19.2 (18.5)
We retain our HOLD rating with a target price of EUR 19.2(18.5). On our estimates and target price Talenom trades at a target P/E and EV/EBIT for 2019E of 19.4x and 16.3x, levels that we have previously consider reasonable.
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.
Talenom earnings were clearly better than expected. Net sales in Q3 were in line with our estimates, at EUR 11.1m (EUR 10.9m/11.0m Evli/cons.). Profitability beat both our and consensus estimates, with EBITDA at EUR 3.1m compared to EUR 2.2m/2.3m Evli/cons.
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Net sales in 2021 are expected to amount to EUR 80-84m and operating profit to EUR 14-16m.
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