Alma Media Q2'24: We do not see a pricing error in the stock

Alma Media's Q2 results, released on Thursday, landed ahead of expectations thanks to slightly better than expected growth and profitability. We have made small positive revisions to our forecasts. However, we do not believe that this has changed the overall valuation picture, and we believe that the stock is correctly priced. Therefore, on the back of estimate revisions, we raise our target price to EUR 11.0 and reiterate our Reduce recommendation.

Growth and profitability above our forecasts

Alma Media's Q2 revenue development was stronger than expected, as overall growth was supported by stronger-than-expected organic growth in addition to inorganic growth. This was particularly evident in Finland, where Marketplaces grew faster than we expected, driven by brisk growth in classified revenues. The slight decline in Career and News Media revenues was also in line with our expectations. EBIT in the second quarter was a hair above the year-ago period, beating our forecast of a decline. In addition to the high-margin revenue beat in Marketplaces, the earnings beat was again driven by the better-than-expected profitability in News Media, which gained efficiencies quicker than lost revenue.

We made moderate increases in forecasts

As expected, Alma Media reiterated its guidance for 2024 according to which its revenue (2023: 305 MEUR) and adjusted EBIT (2023: 73.6 MEUR) are estimated to be at the 2023 level. Following the Q2 report, we have made small positive changes to our forecasts for the current and coming years. The driver for the revenue forecast changes, in addition to the Q2 beat, was the increased forecast for classified revenues in the Marketplaces segment. The impact on earnings was partly offset by slightly higher cost forecasts, while our earnings forecasts for the News Media division, which has made impressive efficiency improvements, were raised. In line with this overall picture, we have increased our revenue forecast for the current year to 312 MEUR (prev. 307 MEUR) and our adjusted EBIT forecast to 74.5 MEUR (prev. 72.2 MEUR). Our earnings forecasts for the coming years were raised by 3-4%. Our extensive report on Alma Media, published in June, is freely available here.

We consider valuation neutral; expected return doesn't exceed required return

Based on the LTM results, the adjusted P/E and EV/EBIT multiples for the stock are approximately 16x and 14x, respectively. In our view, these valuation multiples are justified given Alma Media's high return on capital, good cash flow generation capabilities and longer-term growth prospects, but we see no justification for further expansion. Thus, based on neutral valuation multiples, our expectation of medium-term earnings growth and a reasonable dividend yield ( +4%), we believe the expected return tends to be clearly positive, but does not exceed our required return. The relatively neutral valuation picture is also supported by our DCF model, which is slightly above the current price at EUR 11.2/share.