Talkpool (OM: TALK) - EV SEK 111m; Price 14 SEK; EV/EBIT 23.7x
More research is needed: Talkpool is a microcap company listed on both Nasdaq First North and the Frankfurt Stock Exchange. They provide advanced network services, which involve helping to build and plan telecom networks. They have 1500 employees and are active in most regions of the world. The company grew rapidly through mergers and acquisitions (M&A) and incurred debt; however, since 2022, it has been on a journey to slim down the organization and reduce its debt. By 2024, IoT was fully divested, and the company has since demonstrated steady revenue growth, despite currency headwinds. The company is also doing OPEX-related investments, which currently takes a slight toll on the margins.
Assuming modest growth of 12% a year (Q2’25 stood at 14% with negative currency) for the following years and an EBIT margin of 12% (Q2’25 at 8%) would create an EBIT of SEK 30m in 2028, which is an EV/EBIT of 3.8x. Additionally, a likely upcoming dividend is expected due to the strong cash flows.
A quick and dirty way to gauge growth expectations is EPV(Earnings-Power-Value). This examines current earnings power and divides it by a WACC to provide a valuation estimate based on no growth. LTM EBIT amounts to SEK 18.8 million. There are some obvious growth investments in the OPEX figures, so we will assume a sustainable earnings power before tax of approximately SEK 22 million. The tax rate Talkpol has been paying the last few years has been around 40%. We do not know why it is that high, but we will use it in our estimate. So, the post-tax earnings power amounts to SEK 13.2m. If we then use a WACC of 15%, given the small size of Talkpol and its associated risks, that would result in an EPV of SEK 88 million. Does this mean that the company should be valued at SEK 88 million? No, it's just a way to gauge how much of the current cash flows compared to growth in future cash flows explains the current valuation. The EV of Talkpool stands at SEK 111 million, which means that the current earnings power justifies close to 80% of the valuation. This indicates a low price implied future growth, which we like, as it appears likely that the company will grow by around 10% or more in the coming years, given its initiatives.
We believe that further research is needed on the sustainability of growth and the likelihood of margin mean reversion; however, the valuation appears attractive. Obviously, the low liquidity might be an issue, but the value seems to be there.
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