Enento Q3'24: Fall in interest rates not yet reflected in demand

Translation: Original published in Finnish on 10/28/2024 at 8:10 am EET.

Enento's Q3 results were largely in line with our expectations. Despite the recent decline in interest rates, the company has yet to see signs of a recovery in its operating environment. This should eventually be reflected in the company's demand outlook, but at the same time there will be a headwind next year from likely regulatory changes in Sweden. The big picture of our forecasts is unchanged, but we have slightly increased our one-off forecasts for the coming years. We reiterate our EUR 19.0 target price and Reduce recommendation.

Sluggish performance in line with expectations

Enento's revenue decreased by around 1% to 36.8 MEUR, broadly in line with our forecasts. Overall, segment performance was also in line with our expectations: Consumer Insight revenue continued to decline sharply (-7%) due to weak demand for consumer credit information services, while Business Insight was more stable with a slight increase (+3%). Enento's Q3 adjusted EBIT was 10.9 MEUR, also in line with our forecast (11.0 MEUR). Profitability came under pressure mainly from lower volumes and a weaker sales mix (lower gross margin in growing new products than in credit information services). In view of these profitability pressures, the company managed to protect profitability reasonably well and also reached the target run-rate level of 10 MEUR during the quarter.

No signs of recovery in the outlook yet

Enento reiterated its guidance for the full year of declining revenue and an improving trend in H2. The outlook has stabilized, but the company has not yet seen a real recovery in the demand environment, despite the recent decline in interest rates. The outlook for next year remains rather foggy. On the one hand, the fall in interest rates should support the company's demand outlook, but on the other hand, the regulatory changes that are expected in the Swedish market to prevent overleveraging (including a tightening of the interest rate ceiling) will, in our view, put pressure on the recovery in the Swedish credit market. However, we expect the company to return to growth next year in terms of revenue (2025e: +4 %, 158 MEUR) and earnings (adj. EBIT: 44.2 MEUR, 27.9% of revenue).

Risk/reward ratio at a neutral level

Enento's adjusted EV/EBIT multiples for 2024-2025 are 14x-13x and the corresponding P/E multiples are 21x-17x (P/E multiples adjusted for PPA depreciation only). We think multiples are tight for this year, but next year in particular, the P/E ratio will come down as operating earnings improve, one-offs decline slightly, and financing costs come down. We do not see significant upside in multiples next year, as they also require a significant recovery in the operating environment. We believe the decrease in interest rates is promising for the company, as the company benefits from this with a leverage through an improved demand outlook and the indebted capital structure. At the same time, however, possible new regulatory changes can take the sharpest edge of the recovery in the Swedish businesses. A dividend yield of just over 5% supports the expected return on the stock, even if the company's weak free cash flow (including interest expenses) in the current year is not enough to cover a dividend of EUR 1.0 per share. We expect free cash flow to pick up next year, but overall we still see the risk/reward of the stock as broadly neutral. We see an M&A option in a stock, but as always, the probability of this is difficult to assess and we do not rely on this in our view.