Zalaris reported record revenue and adjusted EBIT in Q325, with continued growth in the Managed Services business more than offsetting a slower quarter for Zalaris Consulting. The company has secured refinancing for its eurobond, which should reduce net finance costs and increase flexibility for capital allocation. Zalaris continues to make good progress towards its medium-term revenue and adjusted EBIT margin targets.

Zalaris has built an impressive track record over the last five years, with a revenue CAGR of 11.6% and adjusted EBIT margins growing from 7.0% to 11.0% from FY20 to FY24. The company is on track to hit its original FY26 targets early and has set ambitious targets for FY28. With long-term customer relationships and a low churn rate, Zalaris has good revenue visibility due to a high proportion of recurring revenues. Focused on multinational customers with a strong presence in Europe, the company has been winning progressively larger contracts and has the opportunity to expand further in Europe and the Asia-Pacific region (APAC).

Zalaris made solid progress in Q225, with revenue up 12% y-o-y and the adjusted EBIT margin expanding 3.3pp to 12.1%. Managed Services continues to win new customers and expand work with existing customers, with a net revenue retention of 103%. Zalaris Consulting growth was more modest, as some staff were diverted to working on Managed Services deployment projects, but profitability improved due to better utilisation. With a steady flow of new business in Managed Services and improved EBIT margins in both businesses, we view the company as on track to meet its FY28 targets, and we maintain our forecasts.

Zalaris has recently signed a contract extension with a Nordic financial institution; the value of the extension makes up a significant proportion of the nearly NOK35m of annual contract value (ACV) signed in the quarter. In addition, letters of intent for two separate Managed Services contracts worth a combined NOK13m in ACV were signed in Q2. These contracts support our FY25 revenue forecast and underline the progress the company is making with existing and new customers. We maintain our forecasts.

Zalaris has concluded the strategic review that was launched in April last year. The company has determined that continuing with its current strategy represents the most compelling route to long-term value creation. Since the review was instigated, Zalaris has achieved significant operational improvements, upgraded its growth and profit targets, and seen material share price appreciation. Management remains committed to its ambition to become one of the top three global providers of multi-country payroll and HR transformation services.