Digital And AI Shifts Will Unlock New European Opportunities

Key Takeaways

• Alma Media's shift from print to digital, including AI investments, promises enhanced revenue growth and improved profitability.
  
• Strategic acquisitions and strong financial health position Alma Media for expanding revenue streams and profitability.
  
• Declining advertising revenue, market expansion challenges, and economic factors threaten Alma Media's profitability, revenue growth, and earnings stability across multiple segments.

Catalysts

A media company, engages in digital services and journalistic media content in Finland and the rest of Europe.

• Alma Media continues to successfully transition from print to digital, moving into AI-assisted platform development. This shift is expected to enhance revenue growth and operating margins as digital platforms typically offer higher profitability compared to traditional print media.
  
• The company's investment in AI is set to improve productivity, service quality, and volume, further driving long-term revenue and profitability growth.
  
• Despite recent challenges, there are signs of economic recovery in key European markets like the Czech Republic and Slovakia, which could boost Alma Career's revenue and earnings performance.
  
• With a strong balance sheet and equity ratio above 50%, Alma Media is well-positioned to invest in new business opportunities, potentially expanding revenue streams and profits further.
  
• Acquisitions, such as those of Edilex and Netwheels, are expected to enhance the company's service portfolio, contributing to sustained revenue growth and improved net margins.

Alma Media Oyj Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Alma Media Oyj's revenue will grow by 3.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 16.7% today to 20.3% in 3 years time.
• Analysts expect earnings to reach €71.3 million (and earnings per share of €0.86) by about May 2028, up from €52.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.2x on those 2028 earnings, up from 18.1x today. This future PE is greater than the current PE for the GB Media industry at 17.8x.
• 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 5.71%, as per the Simply Wall St company report.

Alma Media Oyj Future Earnings Per Share Growth

Risks

• The ongoing decline in advertising revenue, particularly within the News Media and affected Marketplaces sectors, poses a risk to future revenue growth and overall profitability.
  
• The closure of the Slovenian business after an unsuccessful attempt to establish a market presence suggests challenges in market expansion efforts, potentially impacting long-term revenue growth and overall earnings potential.
  
• The bending demand and slow recovery of the housing market, along with the aging car fleet in Finland and slow new car sales, could hinder the Marketplaces segment, affecting revenue growth and profitability.
  
• Heavy salary inflation, particularly in the Central Eastern European region, has been impacting profitability in the Career segment, which, coupled with the increasing costs from new product development, may affect future net margins.
  
• The geopolitical uncertainty and potential economic slowdown, particularly in Finland, coupled with production challenges, such as the decrease in print-related business, may negatively impact earnings stability and growth prospects.

Valuation

• The analysts have a consensus price target of €14.1 for Alma Media Oyj based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €351.9 million, earnings will come to €71.3 million, and it would be trading on a PE ratio of 19.2x, assuming you use a discount rate of 5.7%.
  
• Given the current share price of €11.55, the analyst price target of €14.1 is 18.1% 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.