Alma Media extensive report: Burning low while waiting for growth to take off

The majority of Alma Media's revenue streams come from growing and highly profitable digital businesses. Given these factors and its track record of capital reallocation, we believe the company has good conditions for value creation. In our view, the current valuation of the stock is quite neutral and its expected return is well in line with our required return. Thus, we reiterate our EUR 10.5 target price and lower our recommendation to Reduce (previous Accumulate).

Competitive and mainly digital businesses with high ROIC

In all, 82% (2023) of Alma Media’s revenue and we estimate even a larger share of the result comes from digital businesses that are growing in the long term and highly profitable. The core of these businesses are digital recruitment services and housing and automotive marketplaces, where the company has excellent competitiveness due to its strong market position. This creates a solid foundation on which the company can develop new digital services that strengthen the overall offering and value creation potential. The growth of these services is also valuable, as they typically do not tie up significant capital and their profitability is high. The growth of the current business portfolio is slowed by the development of domestic print media, whose revenue we expect will continue to shrink, driven by the media revolution. However, their relative share of revenue has fallen to a rather reasonable level (2023: 13%).

Short-term growth is held back by economic development, longer-term growth outlook is healthy

We estimate that Alma Media's near-term revenue growth outlook is weak given the economic development, which is reflected in particular in the recruitment business and the advertising market. In the medium term, we expect the overall growth outlook to be good once the economic outlook brightens. Considering this overall picture, we estimate that the company's revenue will grow at an average annual rate of 2% in the next couple of years (2023-2026e). We expect this year's result to decline slightly following a relatively stable revenue trend and ongoing mild cost pressures and the efficiency measures to mitigate their impact. In the medium term, however, we expect the growth in revenue to demonstrate the scalability of operational profitability. Historically, Alma Media has managed to strengthen its growth and profitability through both smaller and large acquisitions, which, considering the company's financial position, is also possible in the future. The key risks are linked to the economic development of the main markets, which links to the demand for the company's services and through their high profitability also to the result.

Risk/reward ratio is fairly balanced

Based on the last 12 months' results, we believe that Alma Media's valuation is neutral (adj. LTM P/E ~15x and EV/EBIT ~13x) and that there is no justified upside in the valuation multiples. We expect moderate organic earnings growth in the coming years from the very good level of 2023. Thus, earnings growth is a slightly positive driver for the expected return in our forecasts, which, together with an average dividend yield of just over 4.5% in the coming years, does not exceed our required return. The relatively neutral valuation of the stock is also reflected in our cash flow model of EUR 10.7 per share. Against this backdrop, we find the current risk/reward ratio to be quite balanced.