Translation: Original published in Finnish on 10/21/2024 at 8:52 am EEST.

Alma Media's profitability reached an all-time high in Q3, driven by record digital sales and good cost efficiency. However, we have made only minor upward revisions to our short-term forecasts. As a result, we maintain our target price of EUR 11.0 and reiterate our Reduce recommendation, as we believe the stock is fairly priced. 

Growth in line with expectations, profitability significantly strengthened

Alma Media's Q3 revenue trend was in line with our expectations, with inorganic growth in Marketplaces being the main driver of growth. However, the company's revenue structure has continued to improve, with the share of digital revenue rising to a record 84% in Q3. Fueled by this higher-margin revenue and the company's longstanding cost efficiency, the adjusted EBIT margin also rose to a record high of 29.1% in Q3, the best quarter of the year seasonally. In the big picture, all three segments performed in line with our expectations. At the segment level, the progress made by News Media is particularly noteworthy, as the segment managed to improve its profitability even as its revenue declined. The segment's adjusted EBIT margin for Q3 was at a very healthy level of 16.4% (Q1-Q3'24: 13.3%).

Small positive forecast changes

As expected, Alma Media reiterated its guidance for 2024 according to which its revenue (2023: 305 MEUR) and adjusted EBIT (2023: 73.6 MEUR) are estimated to be at the 2023 level. This was in line with our expectations, and we have only made minor upward revisions of 2-3% to our earnings forecasts for the next few years. The upward revisions were driven by positive adjustments to our growth forecasts for Marketplaces, and we also slightly increased our profitability forecasts for News Media. Alma Media has again demonstrated its ability to adjust its costs in a weak market this year. We expect a pick-up in economic growth next year to support the growth outlook for all businesses, which, together with their scalable cost structures, will drive earnings growth. The main risk to the earnings growth we forecast for the coming years (+7%) is, in our view, a continuation of the economic weakness seen in Central Europe and its impact on the recruitment business being more pronounced than expected.

We consider the risk/reward ratio balanced

Based on the LTM results, the adjusted P/E and EV/EBIT multiples for the stock are 17x and 14x, respectively. In our view, these valuation multiples are justified given Alma Media's high return on capital, good cash flow generation capabilities and growth prospects, but we see no justification for further expansion. Thus, based on fairly neutral valuation multiples, our expectation of medium-term earnings growth and a reasonable dividend yield (+4%), we believe the expected return tends to be clearly positive, but roughly in line with our required return. The relatively neutral valuation picture is also supported by our DCF model, which is slightly above the current price at EUR 11.7 per share. We are therefore holding out for better buying opportunities in Alma Media, which has a good long-term track record of value creation.