Enento Q3'24 preview: Discord in the outlook

Translation: Original published in Finnish on 10/16/2024 at 08:02 am EEST

Enento will report its Q3 result on Tuesday, October 29 at around noon EET. There has not been any significant recovery in the demand environment yet, and we expect both revenue and earnings to moderately weaken from the comparison period. The outlook for the company is mixed. The fall in interest rates supports the outlook, and it appears that the public credit register that could be harmful to Enento will not be introduced in Sweden. At the same time, other measures proposed in Sweden to contain debt (e.g. a tightened interest rate cap) are likely to slow down market recovery next year. We reiterate our EUR 19.0 target price but lower our recommendation to Reduce (previously Accumulate) with the price rise.

Enento Q3'24 preview: The recovery has not yet started

We expect Enento's Q3 revenue to have decreased by some 1% to 37.0 MEUR. The demand for Enento’s Swedish consumer credit information services began to weaken sharply in the comparison period, and the volumes have still not recovered despite the fall in interest rates. The challenges are still found in Sweden, and we believe Finland’s business development is more stable. With the weak demand environment and cost pressures, we also expect earnings development has continued as subdued and adjusted EBIT to decrease to 11.0 MEUR (Q3’23: 11.8 MEUR).

Discord in the outlook in Sweden

The possible public credit information system has caused uncertainty in Enento's medium-term outlook in Sweden. Enento communicated that it opposed the proposal, and we considered a possible public register an uncertainty factor for Enento in the medium term. At present, it seems that the legislators have rejected the idea of a possible register, but other measures have been proposed to prevent over-indebtedness, such as a tightening interest rate cap, a cap on the cost of loans and restrictions on loan period extensions. The proposed new measures are not unproblematic, as we estimate that these could have a clear negative impact on the short-term demand for consumer credits and thus for Enento’s consumer credit information services in Sweden. Thus, there is clear discord in the outlook. A clear risk factor has now been eliminated and the fall in interest rates should gradually contribute to the demand outlook but the proposed new measures may slow down the recovery of the Swedish credit market.

Risk/reward ratio is neutral with the current valuation

Enento's adjusted EV/EBIT ratios for 2024-2025 are 14.6x-13x and the corresponding P/E ratios are 21x-16x. We consider the multiples for the current year tight, but next year especially the P/E ratio will decrease significantly due to the operational earnings improvement and decreasing financing costs. Even then, however, we do not see any significant upside in the multiples, given that they also require the operating environment to recover. We believe the decrease in interest rates is promising for the company, as it 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. The dividend yield at good 5% provides clear support for the share’s expected return, but we suspect the impact of earnings growth is partly overshadowed by the elevated multiples. We consider the risk/reward ratio of the share to be more or less neutral and see no rush to purchase more shares at the current valuation. We see an M&A option in the stock, but as always, the probability of this is difficult to assess and we do not rely on this in our view.