Translation: Original published in Finnish on 04/25/2025 at 07:30 am EEST

We reiterate our Buy recommendation for Talenom with a EUR 4.6 target price after a rather neutral Q1 report compared to our expectations. In Finland, the development was strong, but the earnings beat was due to an exceptional change in the revenue recognition method after the separation of the software business. Development in Sweden and Spain remained subdued, and we also lowered our forecasts for these regions. Finland drives Talenom's growth and the international business develops slowly, and thus we still consider the stock cheap. 

Strong growth in Finland, but weaker in Sweden and Spain

In Q1, Talenom’s revenue grew by 5% to 35.7 MEUR, which was slightly below our 33.9 MEUR estimate. Of this revenue, 1.5 MEUR stemmed from a change in the revenue recognition of the software business, meaning that December's revenue was also recognized in January. This exceptional item should be eliminated from the operating result. Comparable revenue growth was 0.5% and close to our forecast. In Q1, EBIT was 4.7 MEUR (Q1’24: 3.9 MEUR), exceeding our forecast of 4.3 MEUR. The change in revenue recognition in the software business, together with unallocated non-recurring items (-0.3 MEUR), had a net impact of some +0.9 MEUR compared to the reference period. Comparable EBIT thus weakened slightly year-on-year and fell a bit short of our forecast. The higher-than-expected taxes in the lower lines of the income statement balanced out the reported EBIT beat and EPS ended up at EUR 0.06, in line with our forecasts. Zooming out, development in Finland was very strong in Q1, but international operations clearly fell short of our expectations. In Sweden, the decline in revenue was clearly steeper than we had anticipated, and in Spain, growth was sluggish in Q1. However, both are progressing in strategic projects, which we think is key at the moment.

Estimate changes were minor

As expected, Talenom reiterated its guidance and the company expects 2025 revenue to be EUR 130-140 million and EBITDA to be EUR 36-42 million. The market outlook also remained positive, as good news has been received from Finland (such as tax cuts and lower interest rates) to counterbalance the possible negative effects of the trade war. Good new sales last year, stabilization of transactions, and a gradual recovery in price levels boost Finland's growth outlook, and growth of around 5% should be realistic for the rest of the year as well. At the same time, profitability remains at an excellent level, which resulted in slight estimate hikes in Finland. On the other hand, in Sweden and Spain, we cut growth and profitability expectations reflecting Q1’s outcome. In its Q1 report, Talenom for the first time disclosed figures for its separate software business, which has an annual recurring revenue (ARR) of over 20 MEUR and a strong growth outlook.
 We will model the software business more precisely in the future, but in this update, we note that the business has gotten off to a good start.

Valuation still attractive

Talenom is a cheap stock if you believe that the international business will eventually turn profitable. Although the figures are currently weak in Sweden and Spain, we believe the company is moving in the right direction. The stock's 2025e P/E is 23x and EV/EBIT around 18x, which we find attractive given the company's international development stage. Excluding foreign operating losses alone, the multiples would be 14x and 13x, respectively, which could be justified by Finland's earnings growth prospects in the current recession. So international business doesn't have to be a success story at the current pace, but it does have to slowly move forward.