Administer is currently flying under investors’ radar, as the stock was not traded at all yesterday on earnings day, and the situation is the same today. Trading volumes are also very thin.
The reason for this is certainly the company’s weak stock market performance to date, which has undoubtedly caused disappointment for many, and new investors may not be interested in a company that has previously been mired in a negative spiral. However, in my opinion, the situation is currently better than what the current stock market curve would suggest!
However, efficiency measures were already initiated in the company in 2023, the effects of which began to show last year, and this year, profitability (EBITDA guidance 7-10%) is already at a moderate level. However, there is still clear potential for improvement, as indicated by the company’s targeted 15% margin, which, however, at this point sounds ambitious in light of historical performance. New efficiency measures were again announced in connection with the Q2 report, and these are specifically intended to secure the continuation of the profitability turnaround.
According to our forecasts, the margin would improve to 12% by 2027, which also requires a boost from an economic recovery in addition to efficiency measures. If this were achieved, the stock could well more than double from current levels, as also outlined in the recent report.
In addition, the Sarastia acquisition, which will soon be finalized, adds its own new flavor to this earnings turnaround story. The company stated yesterday in the earnings info that it sees Sarastia’s profitability potential close to the company’s other payroll and financial administration services, which would indicate double-digit margins. Time will tell how successful the turnaround of Sarastia will be, but a margin of safety is provided by the fact that the acquisition price was so low that with 5-10% margins, the deal would already be very good for Administer. This assumes that Sarastia’s current revenue does not erode too badly in the future.