Enento Q2'24: Outlook indicates stabilization

Enento's results were slightly ahead of our forecast, but this was driven by a lower-than-normal cost structure, which we expect to change in H2. The company provided anticipated revenue guidance, which, in line with our expectations, indicates a further decline in sales this year. In general, the demand environment is showing signs of stabilization. Looking ahead to next year, we think the valuation is at an attractive level (adj.  P/E 14x and EV/EBIT 12x) and argues for a positive view. We reiterate our target price of EUR 19 and Accumulate recommendation.

Revenue in line with our expectations, but earnings slightly exceeded our forecasts

Enento's Q2 revenue decreased by 3% to 38.5 MEUR, in line with our expectations. Performance followed the pattern of recent quarters, with Consumer Insight down (-8%) and Business Insight much more stable (+1%). Here, development was supported by, e.g., the company's successful product launches in real estate and compliance services. Adjusted EBIT deteriorated slightly less than expected year-on-year and amounted to 10.9 MEUR (Q2'23:  11.8 MEUR) which corresponds to an EBIT margin of 28.4% (Q2’23: 29.8%). Profitability was again protected despite very low volumes, although the cost structure in Q2 was somewhat lighter than usual.

Anticipated guidance broadly in line with our expectations

For the first time, Enento provided revenue guidance for the current year as the company sees signs of stabilization in the demand environment. The company expects the year-on-year revenue development in H2 to be better than the corresponding revenue development in H1. For the full year, the company expects comparable revenue to decline compared to the prior year. We see the guidance as implying that comparable revenue for the current year will decline by 0-4%. No guidance was given on profitability, but the company said it sees clear upward pressure on costs for the rest of the year as, e.g., marketing efforts are increased with new product launches. In addition, there is a clear inflation in the cost of acquiring public data in Finland. With the report, we have revised our forecasts for the coming years slightly downward, reflecting a somewhat slower recovery in demand than previously expected and pressures on the expenditure side. We expect Enento's revenue to decline by 2% this year to 153 MEUR and adjusted EBIT to deteriorate to 42.2 MEUR (2023: 46.0 MEUR). We believe the company is well positioned to return to significant growth next year with the expected recovery in Consumer Insight. In 2025, we expect revenue to increase by 5% to 161 MEUR and adjusted EBIT to improve to 45.6 MEUR.

We believe a positive view is justified in a recovering environment

Enento's adjusted EV/EBIT multiples for 2024-2025 are 13x-12x and the corresponding P/E multiples are 19x-14x. We think the multiples for the current year are on the tight side, but looking ahead to next year, we think the valuation is already at an attractive level on the back of improved operating performance and declining financial costs. However, the realization of these will require a recovery in the business environment, the timing of which remains uncertain. In our view, if interest rates were to start to decline in due course, the company would benefit from both an improved demand environment and lower interest costs due to its leveraged capital structure. We see good earnings growth potential for the company in the coming years from the current low level (adj. EBIT 2024e-2027e CAGR ~8%), with a dividend yield of around 6% providing significant support to expected returns. Despite short-term challenges, we find the risk/reward ratio of the share good, which supports sticking with the share.