Digitalization And Operating Model Rollout Will Shape Modest Long Term Outlook

Catalysts

About Talenom Oyj

Talenom Oyj provides accounting, payroll, advisory and financial management software solutions primarily to small and medium sized enterprises in Finland, Sweden and Spain.

What are the underlying business or industry changes driving this perspective?

• Although regulatory driven digitalization in Spain, including Verifactu and the expected transition to full electronic invoicing, should support Easor adoption, the need to educate both accountants and end clients on new workflows may slow conversion and delay the expected uplift in software revenue growth.
• While the fragmented SME and accounting office landscape in Spain and broader Europe offers a long runway for partner office expansion, the very small average firm size and limited investment capacity mean Easor’s two tier and potential three tier distribution model could scale more slowly than anticipated, capping near term ARR growth.
• Although the ONE Talenom operating model demonstrates a clear link between process maturity, customer experience and profitability, rolling it out consistently across Finland, Sweden and Spain requires sustained investment in leadership and systems, which could keep group net margins under pressure until efficiency gains fully materialize.
• Despite Easor’s architectural renewal and multi country platform being largely in place, the currently high software CapEx relative to software revenue, coupled with the need to localize and integrate in new markets like Italy and Sweden, may delay operating leverage and weigh on consolidated EBITDA and earnings.
• While recurring and mandatory accounting and payroll services provide a defensive revenue base with improving cash flow after investments, ongoing churn issues in Sweden and the risk of integration missteps in continued Spanish M&A introduce execution risk that could limit group revenue growth and slow the trajectory of EBIT improvement.

Assumptions

This narrative explores a more pessimistic perspective on Talenom Oyj compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Talenom Oyj's revenue will grow by 5.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 4.8% today to 7.0% in 3 years time.
• The bearish analysts expect earnings to reach €10.4 million (and earnings per share of €0.22) by about December 2028, up from €6.2 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €17.2 million.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 15.6x on those 2028 earnings, down from 22.4x today. This future PE is lower than the current PE for the FI Professional Services industry at 22.1x.
• The bearish analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.26%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• If Easor successfully capitalizes on Spain’s regulatory driven digitalization, including Verifactu in 2026 and the later shift to full electronic invoicing, adoption could accelerate faster than expected across SMEs and partner accounting offices. This could lift software revenue and group earnings above a flat share price scenario.
• Management is explicitly targeting double digit midterm growth in the Accounting business, combining organic new customer acquisition, selective M&A and upselling to an already large SME client base in Finland, Sweden and Spain. If this strategy succeeds it could drive sustained revenue growth and higher net margins that would support a rising valuation.
• The ONE Talenom operating model is already showing a clear link between process maturity and higher customer and employee satisfaction as well as profitability at team level. A successful rollout across all countries could structurally improve efficiency and EBIT margins beyond what a stagnant share price would reflect.
• Spain offers a EUR 12 billion accounting market where Talenom currently has a very small share. Continued high growth from both acquisitions and improving organic sales, alongside rising software penetration, could meaningfully increase consolidated revenue and earnings power, putting upward pressure on the share price.
• The planned separation and potential listing of Easor as an independent software company may unlock valuation for a high recurring revenue, high growth platform that is currently embedded within the group. If public market or strategic investor appetite for such assets remains strong this could lead to a re rating of Talenom’s equity and higher earnings multiples.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Talenom Oyj is €2.9, which represents up to two standard deviations below the consensus price target of €3.35. This valuation is based on what can be assumed as the expectations of Talenom Oyj's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €3.8, and the most bearish reporting a price target of just €2.9.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2028, revenues will be €149.9 million, earnings will come to €10.4 million, and it would be trading on a PE ratio of 15.6x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of €3.07, the analyst price target of €2.9 is 5.9% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.