Translation: Original published in Finnish on 02/13/2025 at 08:12 am EET

Each one of NoHo's main row was growth-filled in Q4. The guidance for the financial year promises earnings growth and possible M&A transactions on an international front. We believe the company has clear prerequisites for earnings growth, and feel the related uncertainty has decreased materially during 2024. Thus, we raise our target price to EUR 10.5 (was EUR 9.0). We reiterate our Buy recommendation as the stock’s return expectation is still delectable.

An excellent quarter

In Q4, NoHo's revenue increased by 12% to 120 MEUR. Revenue grew by 8% in Finland, mainly driven by Events and Fast food restaurants. The international business (+20%) was driven by the Triple Trading acquisition and HolyCow’sstrong organic development. Growth in Fast food concepts continued driven by new units and good comparable revenue development. We consider Fast food concepts and their growth essential components for NoHo’s value creation, as their ROCEs are among the best in the group. The strong growth was also reflected in profitability, which in Q4 reached a very high level of 12.6%. Earnings growth was supported by higher volumes, an improved material margin in Finland and increased efficiency in both business areas (incl. BBS synergies). Improved profitability and strong cash flow enable a higher profit distribution than last year (2024 EUR 0.46 vs. 2023 EUR 0.43 per share).

The year will bring earnings growth and M&As

The main message of the 2025 guidance was in line with expectations, indicating that profitability in Finland will remain at its current good level and that the Group's EPS will improve. In our view, the removal of the revenue guidance signals upcoming M&A transactions in international business, especially concerning BBS’ expansion and/or potential exits or mergers in other highly scalable restaurant concepts. BBS' value creation is based on buying and scaling local burger concepts that have crossed the death valley and ultimately selling them at high multiples. In other scalable restaurant concepts, the aim is to create shareholder value either by selling well-developed businesses at higher multiples than at the time of purchase or, alternatively, finding ways to improve business efficiency, e.g., through purchasing operations. Our forecasts do not consider future transactions because of their poor predictability, but we find their expected value positive for investors.

Growth conditions have improved significantly

In our view, NoHo's prospects for EPS growth have improved and the related uncertainty has also clearly decreased. The main factors behind this are the exit from Eezy in Q1’24 and the reduced financing costs due to new financing agreements, which in recent years have been the reasons for the weak EPS growth compared to EBIT development. In addition, the company has proven in 2022-2024 that it can generate a high ~10% margin even in a difficult market. Further impetus for growth is provided by the expected improvement in the Nordic market environment, which should also support NoHo's industry. Even though the nightclub market seems to remain rather weak throughout this year, NoHo’s diversified restaurant portfolio and completed acquisitions will support the company’s growth throughout the year. We expect a brisk annual EPS growth of over 20% from NoHo in the coming years.

The stock's expected return is attractive

The key driver of NoHo’s stock in the medium term is the correction of the valuation level from the current relatively low levels. An adjustment of the 2025 P/E ratio (12x) towards our fair value of ~14x would in itself offer a 15% expected return. In our view, the multiples have been limited partly by the lack of EPS growth and the general low valuation of Nasdaq Helsinki. The upside in the multiples combined with a dividend yield of some 6% raises the stock's expected return to a good level, especially relative to the lower risk level.