Future Cost Reductions And Service Expansion Will Improve Operational Efficiency

Key Takeaways

• Improved operational efficiency and IT consolidation are expected to boost margins and sustain strong cash flow for Enento.
  
• Expansion into Norway and Denmark, alongside new service offerings, aims to diversify revenue streams and foster future growth.
  
• Challenges in Swedish and Finnish consumer credit services and increased data costs are negatively impacting sales, profitability, and future revenue streams.

Catalysts

Through its subsidiaries, provides digital business and consumer information services in the Nordic countries.

• Enento's efficiency program has surpassed its initial €10 million savings target, and further cost reductions are expected from IT infrastructure vendor consolidation by mid-2025. This is likely to have a positive impact on net margins by reducing operational costs.
  
• Despite current declines, Enento is focusing on growth areas such as new services and markets, including ongoing expansion into Norway and Denmark. This is expected to drive future revenue growth as these markets mature and new services gain traction.
  
• Enento's new service developments, including an enhanced SME offering and a fraud prevention solution in Sweden, aim to diversify revenue streams and enhance customer value, potentially boosting revenue and margins as adoption increases.
  
• Legislative changes in Sweden may initially impact consumer credit volumes negatively, but Enento's positioning with reliable credit information solutions could lead to long-term growth opportunities and improved revenue sustainability once market stability is achieved.
  
• Streamlined operations, including insourcing product sales and moving to smaller office spaces, will support ongoing cash flow strength, enabling continued investments in prioritized growth areas and potentially enhancing net earnings by improving operational efficiency.

Enento Group Oyj Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Enento Group Oyj's revenue will grow by 3.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.1% today to 17.0% in 3 years time.
• Analysts expect earnings to reach €28.6 million (and earnings per share of €1.21) by about February 2028, up from €13.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.3x on those 2028 earnings, down from 29.8x today. This future PE is greater than the current PE for the GB Professional Services industry at 19.6x.
• Analysts expect the number of shares outstanding to decline by 0.51% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.2%, as per the Simply Wall St company report.

Enento Group Oyj Future Earnings Per Share Growth

Risks

• The Swedish and Finnish consumer credit information services faced challenges, leading to a decline in net sales, which impacts revenue growth negatively.
  
• The adjusted EBITDA margin decreased due to a weaker sales mix and high data costs, affecting overall earnings and profitability.
  
• Regulatory changes in Sweden might further dampen the consumer credit market, potentially reducing lending volumes and impacting future revenue streams.
  
• Declining consumer confidence in Finland, despite lower interest rates, may suppress consumer spending and demand for credit, which could harm revenue.
  
• Increased data acquisition costs in Finland, combined with weak sales in consumer credit, may continue to pressure net margins and reduce profitability.

Valuation

• The analysts have a consensus price target of €22.175 for Enento Group Oyj based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €29.0, and the most bearish reporting a price target of just €18.7.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €168.8 million, earnings will come to €28.6 million, and it would be trading on a PE ratio of 21.3x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of €17.44, the analyst price target of €22.18 is 21.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.