Inderes Group - Markets in headwind - SEB

Ahead of Inderes’ Q3 report we make sizeable estimate cuts. The company’s Jul-Aug sales were somewhat weaker than we had expected. While one should not draw too far-reaching conclusions from the low season trading, we note that market growth is in headwind with IPO activity virtually non-existent in Finland. Also the Swedish expansion will be a tougher task when potential clients are squeezing rather than expanding their budgets.

Q3 expectations: July-Aug force us to take down estimates

Inderes ‘Jul-Aug sales were somewhat soft compared to our Q3 estimate and we have cut our 2023E sales by 3%. We now forecast Q3 sales of EUR 3.8m, implying September sales of EUR 1.6m, up 8% from a year ago. We note that the acquired Swedish operations are likely to have muted sales in September and hence growth will be largely driven by commissioned research revenue. Our EBITA estimate for the seasonally strong Q3 is EUR 0.8m (margin of 22%).

Market more likely to shrink than expand in near term

The Finnish market lacks IPOs currently and the declined valuations are not making the market more attractive. In fact we believe there might be more companies leaving (due to public tender offers) than entering the market in the coming few quarters. The decreasing market, in which Inderes has very high penetration, will have an impact also on Inderes’ growth. Hence we have cut our estimates significantly for 2023. The market timing is also not perfect for the Swedish operations and we have also cut our estimates for Swedish growth. Given that Inderes has built its platform for future Swedish growth, the difficult market situation also implies that profitability will remain well below potential.

Fair value range down to EUR 17-19

All in all, we have made hefty cuts to our forward-looking estimates. This coupled with lower peer group valuation results in a decline in our fair valuation range to EUR 17-19 (from EUR 23-26).