Enento Q2'24 earnings preview: No signs of market recovery yet

Translation: Original comment published in Finnish on 7/5/2024 at 7:30 am EEST.

Enento will report its Q2 results on Tuesday, July 16 at 12.00 noon EEST. The operating environment remained challenging in Q2 and we expect revenue and earnings to continue to decline despite a relatively weak comparison period. The main reason for the weakness remains weak demand for consumer credit information services in Sweden. The company has still not yet issued guidance for the current year due to the low visibility of the operating environment, which makes forecasts more uncertain than usual. Any comments on the outlook for the market and the company's adjustment measures will again be of particular interest. We have made slight negative revisions to our Q2 forecasts in the context of our pre-comment. 

We expect revenue to continue to decline

We expect Enento's reported Q2 revenue to decrease by around 3% to 38.4 MEUR. This is against the backdrop of an already relatively weak comparison period, although the biggest drop in volume was not seen until the fall of 2023. We believe that this decline has not yet been reversed and that revenue will continue to decrease. We believe that the weak demand for consumer credit information services in Sweden, which has plagued the company, has not yet shown any signs of recovery and that the outlook for the Swedish market remains relatively weak. In Finland, business information services account for a larger share of revenue and we expect developments to be clearly more stable. Here too, however, the company is not immune to a weak demand environment. In contrast to the compliance and industry trend, we expect demand for Real Estate services to have been at a good level, supported by new product launches. We understand that the positive credit register launched in Finland in the spring has not caused any significant surprises for the company's business. We expect the FX impact in Q2 to have been relatively small and the exit of the Tambur platform should no longer be a headwind to growth. As such, we estimate that the reported growth is in the same ballpark as comparable growth.

Earnings follow top line development

We expect Enento's adjusted Q2 EBIT to decline to 10.6 MEUR (Q2'23: 11.8 MEUR), which corresponds to an EBIT margin of 27.6%. We therefore expect a year-on-year deterioration in earnings and profitability, mainly due to lower volumes, which have a strong impact on the bottom line of the income statement due to high gross margins. We also expect gross margin to remain under slight pressure due to the declining relative share of consumer credit information services in Sweden (where gross margin is high). At the same time, the company's adjustment measures will support profitability. Small savings should be seen in IT costs, among other things. Flexibility should also be reflected in personnel costs, as the headcount has fallen with staff turnover while Enento's recruitment is largely on hold. We expect a reported EBIT of 6.8 MEUR, which we estimate will be burdened by ongoing PPA amortization and one-off effects related to the migration of the company's technology platform. 

The slope of recovery is still unclear

Enento has not provided guidance for the current year, which naturally adds uncertainty to the outlook. Providing guidance in connection with the Q2 result is possible, but not guaranteed. The operating environment remains challenging and the outlook for a recovery in demand in H2 has not improved significantly. Our forecast expects Enento's revenue to decline by just over 1% to 154 MEUR this year and adjusted EBIT to total 43.8 MEUR (28.4%). Our forecasts include the expectation of a slight recovery in H2 and, apart from small negative revisions for Q2, we have made no changes for the rest of the year. We expect the Q2 results to provide more visibility for the remainder of the year. In the big picture, the current year will still be quite weak in terms of key figures, and next year the company should be able to return to growth in both revenue and earnings.