Redeye states that Eniro’s Q2 2023 report was weaker than expected on the top line. Net sales were up 11% y/y to SEK239.

This was below our estimates of SEK258m. The Cost of Goods Sold (COGS) was reported at SEK29m, which resulted in a gross margin of 91%, in line with our forecast.

After ramping up hiring and expanding the sales force, OPEX put pressure on margins. Personal costs came in at SEK152m compared to SEK106m in Q2-22 and up with SEK11m Q/Q. EBITDA was down to SEK0m, corresponding to an EBITDA margin of 0% (11.1% last year). This was below our estimates of SEK26m. Adjusted EBITDA was SEK8m (the divestment of Eniro på Sjön added an extraordinary cost of SEK8m)

Net sales came in at SEK144m compared to our estimates of SEK158m with EBITDA margin of 3.8%.

As mentioned, higher spending on recruitment and product development pushed down the profitability in the quarter.

R12m amounts to SEK585, -0.5% Y/Y.

Annual Recurring Revenue (ARR) for Marketing Partner was SEK445m vs SEK442 end of 2022 (translates to MRR of SEK37.08m).

Net sales for the quarter were SEK 96 million, falling short of our estimated SEK 100.5 million, with an EBITDA margin of -5.1%. The shortfall in sales was primarily due to a decline in directory assistance volume, which is decreasing at approximately 20% per year. Eniro is targeting new and more extensive customer agreements within the customer service segment to offset this decline.

R12m amounts to SEK395m, 50.6% Y/Y.

EBITDA margins are taking a downturn, however, we expect EBITDA to improve gradually from here.

Sweden stands for 50% of Eniro Groups revenue, and the number of bankruptcies has been high all year. According to kreditrapporten.se/konkurser, the number of bankruptcies during 2023 up until 30th of August is now up to 4906. The aggregated number of insolvencies is at a higher level than 2022.

Based on the cyclical trends observed in recent years, we anticipate an uptick in bankruptcies toward the end of the year. This is particularly concerning for Eniro, as its customer base primarily consists of micro and small businesses. While Eniro has managed the downturn effectively, the underlying market conditions remain weak.

According to AB Syna and kreditrapporten.se, number of bankruptcies, an average of 28 days, is higher by 34% compared to the last 4 years.

A sluggish advertising market and a decline in newly established micro and small businesses are expected to negatively impact Eniro's growth rate for the remainder of 2023. While the efficiency program launched this quarter targets annual savings of SEK 60-80 million per year and strengthens the sales force within the Marketing Partner division to increase sales in Marketing Partner, we believe these measures are only expected to mitigate the downturn partially.

Redeye is adjusting the top-line growth forecast downward by 5-6% for H2 2023. Although we anticipate a recovery in sales during 2024, the beginning of the year is likely to remain weak, with an uptick expected towards year-end.

As a result, we are revising our 2024E top-line growth projection downward by 2%, forecasting a total net sales of SEK1024m, compared to SEK1046m in our initiation report.

Personnel costs have increased from accounting for 51% of total revenue in 2022 (average) to 64% this quarter. Improving efficiency remains a critical focus for Eniro Group to achieve scalable growth.

As mentioned above, we adjust the net sales for the coming quarters and make minor adjustments to OPEX .

We value Eniro Group using a DCF approach backed by a multiples-based valuation. With strong cash flow in combination with a strong balance sheet in combination with Redeye rating, we use a WACC of 11.5%.

Weighted Average Cost of Capital (WACC) for Eniro is 11.5% and our valuation range is lowered to between SEK0.9 (0.99) to SEK1.46 (1.53), with a base case of SEK1.23 (1.34)

Key assumptions for our base case

Revenues for 2023e: SEK969m

Revenue CAGR for 2023e–2027e: 3.3%

Terminal growth: 2%

Avg. EBIT margin for 2023e–2027e: 4.6%

Terminal EBIT margin: 6%

Finding relevant peers for Eniro Group is somewhat challenging. Eniros's two segments are lowering the risk in our view but harder to find relevant peers.  

On EV/Sales 2024E (median), Eniro Group trades at 0.1x a 92% discount to peers and a deep discount of 94% on 2024e EV/EBITDA . Applying an EV/EBITA multiple of 6.5x (still a 44% discount to peers), we derive at a price per share of SEK1.22, in line with our DCF valuation.