Aallon Group Extensive Report: Profit growth and cash flow from accounting services

Translation: Original published in Finnish on 06/18/2025 at 07:00 am EEST

We reiterate Aallon Group's target price of EUR 13.0 and Buy recommendation. The company is well-positioned to continue creating value with its acquisition strategy of buying small and medium-sized accounting firms at moderate valuations. The implementation of the reorganization creates short-term uncertainty, but enables continued profitability improvement in the coming years, which is also accelerated by organic growth picking up with the Finnish economy. The stock’s valuation (2026e, adj. P/E 10.6x) strikes us as low relative to the company's stable and strong cash-generating business and medium-term earnings growth prospects.

Defensive growth company

Aallon Group's overall investment profile is interesting, as the company combines the defensive and stable nature of the accounting business, which is complemented by a systematic acquisition strategy to accelerate growth. The strategy has also yielded results, with revenue growing by an average of 14.7% per year in 2018-2024, which is in line with the company's targets (average annual growth of 15-20%). The majority of revenue is recurring, which reflects a highly predictable business due to long-standing customer relationships. The business does not tie up much capital, resulting in good return on capital and abundant cash flow. In addition, the company's strong balance sheet provides support for the implementation of its growth strategy.

The accounting firm market is gradually consolidating

The accounting services sector in Finland is still highly fragmented, as we estimate that the 9 largest players only account for some 45% of the total market of 1.4 BNEUR. However, in light of industry trends, the step-by-step consolidation will inevitably continue. Aallon Group's personnel-driven and customer-focused approach provides it with a strong foundation for continued market share growth (2024: some 2.4%) both organically and through acquisitions. We believe there are still around 1,000 accounting firms in Finland that employ more than just the entrepreneur. Of these, around 300 employ more than 5 people and are the most interesting acquisition targets.

Reorganization incurs costs this year

We have revised our estimates slightly downwards, reflecting the costs of the ongoing reorganization, which will incur costs later in the year, and the continued weak development of the Finnish economy. We expect Aallon Group's revenue to grow by 15% this year, driven by acquisitions, while our organic forecast (0%) still anticipates very cautious development. Among completed acquisitions, Premium Group in particular supports profitability development this year, but the reorganization will result in non-recurring costs as subsidiaries are merged and their previously separate systems are integrated. In addition, a major change can tie up the time of billable employees elsewhere. With our forecast, EBITDA will decrease slightly this year to 16.2% (2024: 16.5%) but the EBITA margin (11.1% vs. 10.9%) improves slightly, mainly due to a decrease in the relative share of depreciation. In the long run, we see Aallon Group's EBITDA potential at least at 20% with good strategy execution.

Valuation appears low

With our forecasts, Aallon Group's adjusted P/E ratio for 2025 is 12x and the EV/EBIT ratio is 10x. With 2026 forecast including the latest acquisitions and a slight pick-up in organic growth, the corresponding multiples are 10.6x and 8.4x. We find these to be low for a defensive growth company like Aallon Group, which is well-positioned to create shareholder value through a consistent acquisition strategy. We believe there is room for the valuation to correct upwards over the next year, as the completed acquisitions are reflected in the company's earnings growth. More acquisitions are likely to be seen during this period.