Servicing Demand And Cost Reductions Will Drive Stronger Margins And Earnings Ahead

Catalysts

About Intrum

Intrum provides credit management and debt collection services to financial institutions and other enterprises across Europe.

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

• Resumed organic growth in servicing after several flat quarters, combined with an expanding SEK 1.8 billion pipeline and higher-margin new contracts, is expected to gradually accelerate fee income and support top line growth.
• Ongoing cost reductions from headcount cuts, technology driven automation and recent balance sheet impairments that lower future D&A are likely to structurally reduce the cost base and lift operating and net margins in 2026 and beyond.
• Growing demand from banks, Buy Now Pay Later providers and other consumer credit players for outsourced collections in a more regulated and complex environment should increase servicing volumes and fee revenue resilience through the cycle.
• Disciplined but rising investment volumes in the portfolio business, underpinned by performance above original collection curves and strong IRRs, can stabilize the shrinking book and eventually return investing income and cash EBITDA to growth.
• A deliberate shift toward a larger, lower risk servicing share of cash generation, combined with opportunistic debt buybacks and tighter leverage targets, should improve funding costs, reduce financial expenses and support earnings growth.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Intrum's revenue will remain fairly flat over the next 3 years.
• Analysts assume that profit margins will increase from -0.5% today to 9.8% in 3 years time.
• Analysts expect earnings to reach SEK 1.7 billion (and earnings per share of SEK 12.67) by about December 2028, up from SEK -94.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting SEK2.5 billion in earnings, and the most bearish expecting SEK934.1 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 5.9x on those 2028 earnings, up from -54.4x today. This future PE is lower than the current PE for the GB Commercial Services industry at 17.5x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.12%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Intrum remains highly leveraged with net debt just below SEK 45 billion and a leverage ratio of 4.7 times on a nominal basis. If deleveraging stalls or refinancing the large 2027 maturities becomes costly or constrained, higher interest expense could absorb operating improvements and weigh on net margins and earnings.
• The investing portfolio has shrunk to SEK 22.5 billion and income is already declining due to lower book value. If investment volumes fail to reach the stated SEK 2 billion per year target or pricing discipline limits deal flow in a structurally more competitive NPL market, investing income and cash EBITDA could keep trending down and drag on group revenue and earnings.
• Servicing organic growth has only just returned to 3 percent after several flat quarters, and management acknowledges that onboarding and ramp up for large bank contracts can take 6 to 12 months. If the SEK 1.8 billion pipeline converts more slowly than expected, or churn or pricing pressure offsets new wins, servicing income growth could undershoot expectations and limit top line expansion.
• Recent large impairments on goodwill in Spain, client contracts and software signal that prior assumptions about future cash flows were too optimistic. If further underperformance emerges in other markets or products, additional write downs could be required and reduce reported net income while also indicating weaker structural profitability than assumed.

Valuation

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

• The analysts have a consensus price target of SEK47.17 for Intrum based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be SEK17.7 billion, earnings will come to SEK1.7 billion, and it would be trading on a PE ratio of 5.9x, assuming you use a discount rate of 10.1%.
  
• Given the current share price of SEK37.86, the analyst price target of SEK47.17 is 19.7% 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.