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Talenom: Steadily through the pandemic - Evli Research

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.
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