Talenom - Preparing new avenues for growth

Talenom reported solid Q3 figures despite slight sales weakness. Attention was drawn to the new small customer concept, with the for us surprising addition of banking services. Although still in its infancy, the concept in our view appears promising.

Solid profitability, slight COVID-19 sales weakness
Talenom reported solid Q3 results. Revenue was slightly weaker than expected, at EUR 14.8m (Evli/cons. EUR 15.3m/15.2m), as the pandemic has a slight impact on transaction volumes. Cost control however aided profitability and the EBIT of EUR 3.1m beat expectations (Evli/cons. EUR 2.6m/2.8m). The financial figures were clearly of lesser interest in the earnings report as focus lied on the new small customer concept.

Seeking to cater previously underserved customer segment
Talenom launched a new small customer concept, the TiliJaska service, a free accounting system, as well as Talenom Light Entrepreneur, designed for the smallest, previously by Talenom underserved customers. Costs for the system arise with usage after a certain threshold. The product is intended to broaden the service offering and attracting growing enterprises to Talenom’s bookkeeping services but also to be a profitable product in itself. The product will be in beta until the end of the year and is also planned to be launched next year in Sweden. A potentially very interesting and unexpected new angle was the addition of banking services. In our view the service, or essentially the idea of in the long-run potentially creating a much broader service platform, view has clear potential. Talenom also mentioned that it is looking into other markets in Europe, but we see it as too early to make any assumptions regarding such expansion.

HOLD with a TP of EUR 10.2 (8.5)
Talenom’s valuation continues to be stretched but with the interesting new sales growth potential and more light to be shed on the new services in the upcoming Capital Markets Day (November 11th), we can justify to stay along for the ride. We adjust our TP to EUR 10.2 (8.5), valuing Talenom at a 2020 P/E of 45x, and retain our HOLD-rating.

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