And here are Juha’s comments on the Q2 results themselves.
Administer’s H1’24 report published this morning was mostly in line with our expectations. Revenue fell slightly short of our forecast due to weakness in Econia, but thanks to better-than-anticipated profitability, the result still met our expectations. The profitability development was indeed encouraging and confirms the ongoing earnings turnaround. Guidance for 2024 remained unchanged, but a more detailed analysis of the outlook will take time. Our initial reaction to Administer’s Q2 report leans at least slightly to the positive side.
But here’s the company report as well, what could be better than that?
We are raising Administer’s target price to EUR 3.2 (prev. EUR 2.8) and our recommendation to Accumulate (prev. Reduce). The company’s Q2 results confirmed that the profitability improvement is on the right track, which increased our confidence in the earnings growth outlook for the coming years. The company reiterated its guidance for 2024, which seems challenging in terms of revenue but even cautious regarding profitability. The stock’s valuation is attractive (2025e adj. P/E 9x) as the strategy progresses and earnings grow, but the relatively high level of indebtedness leaves little room for missteps.
Salkunrakentaja has written an article about Administer and has quoted, among others, Evli analyst Jerker Salokivi.
However, Administer’s stock valuation multiples are reasonably low.
According to Evli’s forecasts, Administer’s 2024 EV/EBIT multiple adjusted for goodwill amortization is 10.5x and the P/E ratio is 11.4x, which is low compared to peers.
“Our DCF model supports a moderate valuation, and we consider the long-term potential significant as the company reaches its targets,” Salokivi states.
Evli maintains a target price of 3.0 euros and a buy recommendation for Administer. The stock’s latest price quote is approximately 2.6 euros.
Evli released an analysis of Administer last week. According to it, the company is turning its business more profitable through its new strategy, supported by a cost-saving program. The company aims for a revenue of EUR 100 million and a 15% EBITDA margin by 2026.
The EBITDA margin for the first half of 2024 was 9.5%, but reaching higher targets will, according to Evli, require more demand or a shift to more profitable services. The target price is EUR 3 with a Buy recommendation.
@Juha_Kinnunen seems to have a Midas touch with these profit-warning cases under coverage. Give the man some mercy!
Administer Plc Company Release 22 October 2024 at 8:50 a.m.
Administer is lowering its guidance for 2024 regarding revenue. Regarding the EBITDA margin, the guidance is being raised. Finland’s generally weak economic situation is particularly affecting the staffing services business. The measures of the company’s profitability program, launched in August 2023, have been implemented according to plan, and a permanent turnaround for the better has been achieved in profitability.
New outlook for 2024
The company estimates its 2024 revenue to be EUR 74–76 million and its EBITDA margin to be 7–9%.
Previous outlook for 2024
Administer aims to continue growth investments as well as organic and inorganic growth in 2024. Administer estimates its revenue to be EUR 76–81 million and its EBITDA margin to be 6–9% in 2024.
Mr. Kinnunen has published a new company report following Administer’s negative guidance update.
We reiterate our Accumulate recommendation for Administer, but adjust our target price to EUR 3.0 (previously EUR 3.2). Yesterday, the company lowered its 2024 revenue guidance while simultaneously raising its profitability guidance. The midpoint for EBITDA indicated by the guidance rose slightly, so this was a guidance revision rather than an actual profit warning. However, we lowered our own forecasts slightly in line with the revenue, but in our view, Administer is progressing well with its profitability turnaround despite the challenging market situation. The valuation is inexpensive, but valuations for professional services companies on the Helsinki Stock Exchange are currently at rock bottom across the board.
And a small correction to Mr. Alokas’s earlier comment.
That wasn’t a profit warning, but genuinely a guidance revision (the midpoint indicated by the guidance rose slightly). I certainly understand the confusion or assumption, as those profit warnings have been popping up like mushrooms in the rain
Here is a fresh company report on Administer from Juha.
We reiterate our Accumulate recommendation for Administer, but adjust our target price to EUR 2.8 (prev. EUR 3.0). The Q3 result was in line with our expectations, and the 2024 guidance was unchanged as expected. However, we consider the revenue trend concerning, and the Finnish economy shows no signs of recovery, so we lowered next year’s forecasts by about 10%. The valuation is still very inexpensive, but clear positive catalysts for an upside seem to be missing as the earnings growth outlook has weakened.
I haven’t seen or figured out yet what the “thing” is with Administer. Sure, it performs somewhat and the valuation isn’t bad, but I haven’t yet figured out how it differentiates itself from larger competitors in the long term. It’s quite a complex entity; hopefully, it can make its structure more streamlined and better integrate its operations.
Especially in the accounting firm business, there is a lot to automate (naturally) across the industry in general (basic work is constantly decreasing), but conversely, the industry has seen quite a competition for various experts. In Aallon Group, employee satisfaction is high, and people want to work there; NPS 54. I haven’t been able to clarify the automation levels of different companies or software through inquiries and research, but if only one could find an accounting firm on the exchange that has high employee satisfaction and good software.
Here are Juha’s comments on Administer’s three small acquisitions.
Administer started 2025 at a brisk pace, as the company announced it had agreed on three corporate acquisitions. These acquisitions strengthen the group’s accounting services’ regional operations across Finland. We estimate the acquired targets’ combined revenue to be approximately EUR 1.2 million and their results to be positive. This provides a good growth foundation for the accounting firm business. The acquisition prices were not disclosed, but we estimate the valuation levels of the acquisitions to have been moderate.
One could get this cheaply as the EV/EBITDA would only be 6.1 at 25e according to Inderes’ current forecast.
Unfortunately, however, those consulting firms are very dependent on their core owners, and I don’t necessarily see many synergies between them, even if they are thematically related to HR and financial administration. This story, where all sorts of fluff is acquired around the core business, has been seen too many times. A good point of comparison is in Helsinki’s IT and asset management firms, where focused players succeed best, and soloists repeatedly take a beating.
A good scenario for Administer would already be if all the different business segments remained somewhat under control (read: afloat) and if smaller players could be acquired at a discounted multiple and genuinely integrated into the segments’ business operations.
Here are Juha’s preliminary comments regarding Administer’s Q4, which will be published on Wednesday at 8:30 AM.
We expect stable revenue and a reasonable improvement in results from the company, supported by the previously implemented profitability program. We expect the dividend proposal to be 0.07 euros/share, i.e., 30% of adjusted earnings per share. The most interesting single piece of information in the report is the guidance for 2025, in addition to which we eagerly await comments on the more detailed development of different business segments as well as market outlooks. The general outlook remains weak along with the Finnish economy, which limits the growth outlook and profitability potential without possible new efficiency measures.
Here are Juha’s comments regarding Administer’s Q4 results this morning.
Administer’s Q4 results, published this morning, clearly fell short of our expectations, partly due to one-off items. Revenue developed roughly in line with our expectations, but operational profitability remained weak, and the result also included one-off impairments. The dividend proposal of 0.05 euros per share was a slight disappointment given the results. The guidance provided for 2025 was mostly in line with our expectations, but we preliminarily see downward pressure on our profitability and earnings forecasts. The market outlook was as cautious as expected. Overall, our initial reaction to the financial statement release is negative, but a more detailed analysis requires time.
It will probably require a million (euros) to correct the EBITDA forecast downwards, as the expected EBITDA margin for next year was 9.6% and the mid-point of the guidance is 8.5%. For the bottom line, this probably means an adjusted EPS of around €0.2? At the same time, it’s probably appropriate to moderate forecasts for future years as well.
The revenue from municipal accounting was indeed in the “Other” category.
Administer’s operational profitability remained weak in Q4, and one-off items eroded the result. According to the company, the market environment still appears challenging. CEO Kimmo Herranen in an interview with analyst Juha Kinnunen.
Topics:
00:00 Start
00:11 Key highlights of the fourth quarter
00:53 Where will the next profitability leaps come from?
01:52 Profitability development of subsidiaries
02:51 Silta and accounting firm business
03:29 One-time impairments
04:38 Actions of the profitability program
05:05 Situation of the cost structure
05:32 Background of the guidance
07:32 Municipal accounting
07:57 How to get more out of the operations?
09:45 Has the market further weakened?
10:45 Most significant steps to achieve the goals
11:51 Balance sheet situation
12:45 Dividend payment
Here is a company report from Juha Kinnunen on Administer right after Q4.
We reiterate our Add recommendation for Administer, but revise our target price to 2.5 euros (previously 2.8 €). The Q4 result was a clear disappointment and our 2025 forecasts decreased significantly, but the stock’s valuation multiples are reasonable despite this. In a good scenario, the market situation brightens as the year progresses, the company achieves organic growth, and earnings improve significantly. In a weak scenario, market headwinds continue and earnings remain far from the potential we see.
Quoted from the report:
Market outlook was cautiously optimistic as expected, and the market environment remains challenging according to the company. According to the company, the general expectation is that the Finnish economy will turn to a growth path in the coming years, but public sector savings and tax increases will slow down demand growth and raise prices at the beginning of 2025.
Our own assumption is that revenue growth will be tight in the first half of the year, and organically also negative. However, in the latter half of the year, we expect the market situation to improve and organic growth to turn positive. This growth accelerates significantly in our forecasts in 2026, through which profitability can finally rise. However, there is no visibility for next year yet, so forecasts should be treated with extreme caution.
Arbitration Decision Concerning the Purchase Price of the Econia Acquisition Made in 2022
Administer Plc acquired Econia Oy on November 11, 2022. After the acquisition, an error was discovered in the financial information provided to Administer Plc regarding the acquisition target before the transaction, which led Administer Plc to present a claim for a price reduction to the sellers. The dispute concerning the claimed price reduction has been handled in arbitration proceedings between Administer Plc and the former principal owners of Econia Oy.
The arbitration tribunal issued an arbitration award on March 24, 2025, in which the former principal owners were obligated to pay Administer Plc a total of 0.7 million euros as a price reduction, plus interest and late payment interest on this amount, and to largely cover the costs of the arbitration proceedings.
The arbitration decision reduces the purchase price of the acquisition, which will decrease the Econia purchase price liability recorded in Administer’s balance sheet and the goodwill by a corresponding amount. The decision has no impact on the company’s 2025 earnings guidance.
Sotkamo’s Kinnunen has commented on how the purchase price of the Econia acquisition decreased slightly in the arbitration process.
Administer announced yesterday the decision of the arbitration process in the dispute concerning the purchase price of the Econia acquisition. Administer received a price reduction of EUR 0.7 million in the decision, along with yield and late payment interest for this amount, which practically reduces Econia’s purchase price debt. We will take this into account in the next update, but in the big picture, the impact of the decision is small and does not affect our view on the stock.
