Redeye states that Eniro’s Q3 2023 report was somewhat weak on top-line. Net sales were down 4% y/y to SEK238. The soft top-line growth was mainly because Dynava posted a negative growth of -9% due to a decline in directory assistance.

The Cost of Goods Sold (COGS) was reported at SEK22m, which resulted in a gross margin of 92%, in line with our forecast.

Personal costs came in at SEK129m compared to SEK121m in Q3-22 and down with SEK-23m Q/Q.

EBITDA was very strong and came at SEK45m, corresponding to an EBITDA margin of 18.9% (31% last year). This was well above our estimates of SEK9m. According to management, and highlighted in the Q2 2023 report, Eniro successfully implemented a significant portion of its restructuring program faster than initially planned, resulting in a notable improvement in EBITDA during Q3 2023, raising profitability compared to the previous quarter's margin of 0%.

Net sales R12m come in at SEK969m with a growth rate of 9%.

Net sales of Marketing Partner came in at SEK147m compared to our estimates of SEK145m with EBITDA margin of 28.4%. ARR for Marketing Partner was SEK458m, up with SEK9m y/y. Increasing the ARR in the tough market environment is a sign Eniro managed to sell more products to existing customers. Very solid performance.

As a reminder, Eniro offers seven products split into three segments.

1. Keep my customer, Internet visibility

Internet visibility is the largest and most profitable product in Marketing Partner, accounting for 30–40% of revenues and bringing the highest margin. It helps customers generate correct information in major search engines and on Google, My Business, and Eniro. It also has a service that includes assistance from Eniro experts.

2. Find new customers, Google ads

Helps clients to create targeted online ads that suit their company’s products and services, including statistics and other metrics.

3. Become number one in my market, Facebook ads

Helps the customer to create Facebook and Instagram ads and to maximise the impact of these, depending on budget.

Marketing Partner R12m revenue was SEK 584m, with negative growth of -1.6%

Sweden stands for 47% 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 9th of November is now up to 6633. The aggregated number of insolvencies is at a higher level than 2022. Despite this weak market, Eniro managed to grow its ARR by 2% Y/Y is impressive.

Net sales for the quarter were SEK91, falling short of our estimated SEK98, with an EBITDA margin of 8.1%. The shortfall in sales was primarily due to a decline in directory assistance volume. Eniro is targeting new and more extensive customer agreements within the customer service segment to offset this decline.

R12m amounts to SEK386m, 29% Y/Y.

Increasing the revenue-driven personnel vs the non-revenue personnel is an important key in driving profitability. This is something the management is focusing on and is improving.

This quarter, the overall personnel cost decreased to 54% of revenue.

Following the restructuring program, the EBITDA improved in the quarter. For the full year, we estimate the Marketing Partner EBITDA margin of 13.5% and Dynava 3%.

During the quarter, the Eniro Group repurchased 17.35 million shares, resulting in the company now owning 2.4% of its outstanding shares. There is still room to repurchase an additional 19 million shares before the share buyback program is fully utilized (5% of outstanding shares). Redeye has a highly positive outlook on Eniro's decision to repurchase its shares, as it signals management's focus on effective capital allocation.

Announced yesterday morning, Eniro Group are looking into a strategic overview of Dynava to optimize shareholder value. Dynava comprises three daughter companies: Dynava Oy, Dynava AB and Samres AB.

Dynava has a revenue of SEK387m with a broad customer base in Sweden Finland and Norway. It has 900 employees in six countries. Redeye lifted this as a scenario in our initiation report published 2023-06-27 as a catalyst. We believe it is a very positive initiation of Eniro Group management and will strengthen the investment case of Eniro and the core business Marketing Partner.

According to Eniro Group CEO Hosni Teque-Omeirat, there are two options that the management is evaluating. Either it divests Dynava to an external buyer and receives cash for the deal. The second option is to distribute Dyna to Eniros shareholders, i.e. a separate listing of Dynava.

If Dynava is sold to an external buyer, we believe Eniro could distribute SEK100m to the shareholders (based on the valuation of Dynava at SEK165m, see below). Assuming 746.2m shares, this translates into a cash payout of SEK0.13, or 24% payout ratio calculated on today's share price of SEK0.548.

We will continue to make financial forecasts for the Eniro Group as it stands now, with both business arms intact. In the valuation section below, we add a SOTP valuation for both Marketing Partner and Dynava, highlighting the potential of a divestment.

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 continues to bite, we foresee an EBITDA margin of 8% for 2023E. We anticipate higher profitability going into 2024E with EBITDA margin of 15%.

We only make smaller adjustments on the topline growth, mainly decreasing the growth in Dynava.

We value Eniro Group using a DCF approach backed by a multiples-based valuation and SOTP. Weighted Average Cost of Capital (WACC) for Eniro is 12.2% and our valuation range is reiterated between SEK0.93 to SEK1.46, with a base case of SEK1.23.

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 93% on 2024e EV/EBITDA . Applying an EV/EBITDA multiple of 6x (still a 45% discount to peers), we derive a price per share of SEK1.18, in line with our DCF valuation.

To support our DCF valuation, we also conduct a SOTP valuation to highlight the value in the two business arms.

Finding a publicly traded peer for Dynava is challenging. There is a company called One to One contacts (OTO.BK) https://www.onetoonecontacts.com/ listed on the SET market in Thailand. It has a market cap of USD15m and trades at a price/sales of 0.7x (Factset).

On 23 May 2022, Dynava bought Samres AB for SEK59mn. Samres AB had sales of SEK160m with EBITDA of SEK12m, and a 7.5% margin. At that time, Samres had cash of SEK19m, suggesting an EV of SEK40m (SEK59m minus SEK19m). This translates into a price/sales of 0.37x (59/160) and an EV/EBITDA of 3.3x (40/12).

We estimate Dynavas revenue 2024E to SEK384m with an EBITDA of SEK35-40m.

Using the average Price/Sales multiples of 0.54 ((0.7+0.37)/2) we derive the following valuation for Dynava:

P/S valuation: 0.54x384= SEK207m

EV/EBITDA valuation: 3.3x37 = SEK122m

Redeye suggests that Dynava's valuation is in the middle of the range, around SEK165m.

We estimate Marketing partner's revenues in 2024E to be SEK616m, with an EBITDA of SEK111m.

Applying peers’ median EV/Sales for 2024E of 2.5x, and EV/EBITDA for 2024E is 10.8x is a bit high, but it is hard to decide what a fair discount rate should be. If we apply 30% discount to the multiples we derive the following valuation for Marketing partner:

EV/Sales: 1.75x616= SEK1078m
EV/EBITDA: 7,6x111 = SEK844m

Redeye suggests that Marketing Partner valuation is in the middle of the range, around SEK961m.

Adding up the SOTP valuation together, we derive at a total value of SEK1126m, which is 22% higher than our DCF valuation of SEK920m.