Enento: Getting back on board

Translation: Original published in Finnish on 12/9/2024 at 7:50 am EET.

Enento’s stock has been under pressure since our last update. There is still considerable uncertainty about the new normal in the Swedish credit market, but the slightly lower valuation and the continued decline in interest rates make the stock more attractive in our view. We reiterate our EUR 19.0 target price but raise our recommendation to Accumulate (was Reduce). 

Interest rate cuts should gradually support demand outlook

Enento has had a challenging few years, partly due to the substantial increase in interest rates and the resulting significant decrease in demand for consumer credit information services, especially in Sweden. In addition, there have been structural changes in the Swedish credit market as lenders and brokers have left the market. Tightening measures that are likely to come into effect next year, such as the interest rate cap, cost cap on loans and the removal of tax deductibility for loans, are creating uncertainty about what the "new normal" for the market will be. At the same time, however, the drop in interest rates seen this fall should gradually start to support the demand outlook. In the context of the Q3'24 results, the company did not yet see any significant concrete signs of this. The mood is still expectant, but we also think it is natural that there is a slight delay in the pick-up. On a positive note, Enento's Business Insight segment has been much more stable in recent years and has returned to growth this year.

Return to earnings growth expected next year

In this update, we have added some extra caution, especially in our early 2025 forecasts. However, we still expect the company to return to growth in both revenue and earnings next year. For 2025, we forecast top line to grow by 3% to 157 MEUR. We expect growth in both segments, but Consumer Insight's revenue (2025e 63.8 MEUR) is still far from the business area's peak years (2022: 75.4 MEUR). As a result, our expectations for the recovery of the business are quite modest. We expect adjusted operating profit to increase to 43.8 MEUR (2024e: 41.3 MEUR), mainly driven by higher transaction volumes. However, it should be noted that the company will still have to record significant one-off items (forecast at 5 MEUR) related to the IT consolidation project next year and that the actual cash flow result will be below the adjusted figures. 

Valuation turned to the attractive side

Enento’s stock is down 8% since we downgraded our recommendation to Reduce (October 16). Since then, there have been no concrete signs of a recovery in the market and uncertainty about the future of the Swedish market remains. However, with interest rates continuing to fall and valuations moderating, we think the risk/reward is much better than before. Enento's adjusted EV/EBIT multiples for 2024-2025 are 13.6x-13x and the corresponding P/E multiples are 19x-16x (P/E multiples adjusted for PPA depreciation only). We think the multiples are tight for the current year, but we expect the company to bottom out this year. Next year in particular, the P/E ratio will already decline to a moderate level due to the improvement in operating income, slightly lower one-off items and declining financing costs. Of course, there is some uncertainty about the outlook, but we believe the company has the potential to return to earnings growth after a challenging few years.