Last close As at 05/08/2026
NOK99.00
▲ −1.50 (−1.49%)
Market capitalisation
NOK2,192m
Research: TMT
Zalaris delivered its 11th consecutive quarter of revenue growth in Q324, alongside record quarterly revenue and profitability. Contract momentum continues with both existing clients and new contracts, resulting in a net retention rate within Managed Services of 108%. Zalaris has made good progress towards its mid-term adjusted EBIT margin target of 12–15%, with a 17.9% margin in the Managed Services business boosting group margins to 10.9% (Q323: 8.5%). The enhanced profitability has been driven by the strategic improvements to operations in Germany and increased use of near-shore and offshore service locations to drive efficiencies. Our estimates are unchanged as we expect a strong final quarter with maintained margin progression and contract momentum. Management noted it is making progress in the strategic review announced in April, although no outcome has yet been reported.
Written by
Zalaris |
Another quarter of records |
Quarterly results |
Software and comp services |
25 October 2024 |
Share price performance
Business description
Next events
Analysts
Zalaris is a research client of Edison Investment Research Limited |
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Zalaris delivered its 11th consecutive quarter of revenue growth in Q324, alongside record quarterly revenue and profitability. Contract momentum continues with both existing clients and new contracts, resulting in a net retention rate within Managed Services of 108%. Zalaris has made good progress towards its mid-term adjusted EBIT margin target of 12–15%, with a 17.9% margin in the Managed Services business boosting group margins to 10.9% (Q323: 8.5%). The enhanced profitability has been driven by the strategic improvements to operations in Germany and increased use of near-shore and offshore service locations to drive efficiencies. Our estimates are unchanged as we expect a strong final quarter with maintained margin progression and contract momentum. Management noted it is making progress in the strategic review announced in April, although no outcome has yet been reported.
Year end |
Revenue (NOKm) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/22 |
892.7 |
6.1 |
0.07 |
0.50 |
N/A |
0.7 |
12/23 |
1,131.2 |
21.5 |
1.49 |
0.00 |
48.3 |
N/A |
12/24e |
1,306.5 |
111.5 |
4.11 |
0.91 |
17.3 |
1.3 |
12/25e |
1,435.3 |
141.5 |
5.27 |
1.11 |
13.7 |
1.5 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Eleventh consecutive quarter of revenue growth
Zalaris has delivered a consecutive quarter of record revenue at NOK339.7m (Q323: NOK277.5m), up 22.4% y-o-y. The net client retention in the Managed Services business remains strong at 108% as Zalaris continues to upsell to existing clients and win new contracts. Adjusted EBIT margin was 10.9% (Q323: 8.5%), driven by a strong margin in Managed Services and progress made against its Zalaris 4.0 strategy to improve German profitability and use more near-shore and offshore service locations. The improvement in profitability flowed through to strong free cash flow of NOK48.9m (Q323: NOK20.6m). However, due to fx movements, net debt before leases remained flat at NOK286.3m (Q224: NOK286.5m).
Estimates remain unchanged
We have left our numbers unchanged as we expect a strong Q424 to deliver on our FY24 revenue estimate of NOK1,306.5m and the ongoing margin improvements to deliver an adjusted EBIT margin of 11.3%. There are also several contracts that will go live in Q424 as Zalaris rolls out its contract backlog. Management remains confident in its FY26 target of NOK1,500m for revenue, with an adjusted EBIT margin range of 12–15%.
Valuation: DCF valuation shows substantial upside
Zalaris’s share price has performed well in the year to date, up 55%. Despite this, it continues to trade at substantial discounts to both its payroll software and IT services peers. Our discounted cash flow (DCF)-based valuation of NOK91.1 per share remains unchanged and represents significant upside to the current price.
Q324 and 9M24 results summary
|
Exhibit 1: Quarterly revenue and adjusted EBIT margin progression |
|
|
Source: Zalaris |
Momentum continued apace for Zalaris in Q324, with another consecutive quarter of record revenue and adjusted EBIT, showcasing the attractive financial profile of Zalaris’s contracts, typically long-term with a low churn rate. Group revenues grew 22% to NOK339.7m (Q323: NOK277.5m), with strong growth in Managed Services of 27% to NOK256.7m (Q323: NOK201.5m), offsetting a slight decline in Professional Services of 1.8% to NOK71.6m (Q323: NOK72.9m). Professional Services’ slowdown is mainly due to the completion of a large consultancy project in the UK. The Asia-Pacific (APAC) region continues to show strong year-on-year and sequential growth, with revenues of NOK13.5m (Q323: NOK4.4m).
Contract momentum is building in the Managed Services business, with an implementation project starting for two large German customers, renewed agreements with Tryg and Entercard, and extended services for SAS’s UK workforce and an unnamed low-cost airline. Zalaris signed a letter of intent and started implementing Peoplehub for a multinational oil and gas company based in the UK with 2,500 employees. Reflecting this strong momentum, net revenue retention was 108% and resulted in a record revenue achieved.
The Professional Services saw a reduction in revenue in the quarter due to the completion of a large consultancy project in the UK, as mentioned earlier. That said, Zalaris has maintained good momentum in new client wins, including a long-term application maintenance services agreement with the Max-Planck Institute in the DACH region.
The APAC region has sustained strong progress, growing revenues up to NOK13.5m from NOK10.8m in Q224 and NOK4.4m in Q323. Having won contracts with Yancoal, Engenco and Goulburn Valley Water, the APAC region delivered its first quarter of positive EBIT.
Looking at profitability, Zalaris achieved record quarterly adjusted EBIT in Q324 as it progresses towards its FY26 margin target of 12–15%. Adjusted EBIT grew to NOK37.0m (Q323: NOK23.7m), up 56.5% y-o-y. The company is shifting its cost base to lower-cost near-shore and offshore locations and away from onshore locations, while margin improvement initiatives in the Nordic countries and Germany are starting to bear fruit. Despite Zalaris growing the number of full-time members of staff by 55 people year-on-year, personnel costs, as a percentage of revenues, continue to fall at 48.6%, compared to 50.3% for the prior year. Managed Services grew adjusted EBIT by 54.8% to NOK45.4m (Q323: NOK29.3m), at a record margin of 17.9%. Profitability in Professional Services was lower by 26.2% y-o-y to NOK5.2m (Q323: NOK7.0m), driven by the lower revenue levels. Despite this, management is encouraged by the higher utilisation rate quarter-on-quarter and expects this positive trend to continue in Q424.
Operating cash flow improved significantly both year-on-year and quarter-on-quarter at NOK48.4m (Q323: NOK15.3m; Q224: NOK18.4m), driven by higher profitability and benefiting from a working capital inflow. Net debt (excluding leases) was broadly flat at NOK286.3m (Q224: NOK286.5m), as the increase in the cash position was offset by an increase in bank debt following adverse fx movements in Zalaris’s euro-denominated bond loan.
Exhibit 2: Q324 and 9M24 results summary
NOKm |
Q323 |
9M23 |
Q324 |
9M24 |
Revenue |
277.5 |
820.8 |
339.7 |
981.4 |
y-o-y growth (%) |
22% |
20% |
||
Adjusted EBITDA |
37.9 |
103.3 |
55.5 |
151.8 |
y-o-y growth (%) |
46% |
47% |
||
Adjusted EBIT |
23.7 |
62.4 |
37.0 |
100.3 |
y-o-y growth (%) |
56% |
61% |
||
Operating cash flow |
15.3 |
14.4 |
48.4 |
74.1 |
Investing cash flow |
(4.2) |
(13.7) |
(9.4) |
19.3 |
Financing cash flow |
(3.7) |
25.1 |
(21.0) |
(46.4) |
Net change in cash |
7.4 |
25.9 |
18.1 |
47.0 |
Net debt |
333.3 |
333.3 |
286.3 |
286.3 |
y-o-y growth (%) |
(14)% |
(14)% |
||
Net debt/adjusted EBITDA (last 12 months) (x) |
2.5 |
2.5 |
1.4 |
1.4 |
Source: Zalaris. Note: 9M24, the first nine months of 2024.
Exhibit 3: Financial summary
NOK'm |
2021 |
2022 |
2023 |
2024e |
2025e |
|
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
|
INCOME STATEMENT |
||||||
Revenue |
|
775.3 |
892.7 |
1,131.2 |
1,306.5 |
1,435.3 |
Costs |
(673.3) |
(786.6) |
(968.6) |
(1,084.4) |
(1,176.9) |
|
EBITDA |
|
101.9 |
106.2 |
162.6 |
222.1 |
258.3 |
Normalised operating profit |
|
39.8 |
46.2 |
95.8 |
145.7 |
169.5 |
Amortisation of acquired intangibles |
11.5 |
11.9 |
13.7 |
0.0 |
0.0 |
|
Exceptionals |
0.0 |
1.9 |
0.0 |
(7.9) |
0.0 |
|
Share-based payments |
5.7 |
8.7 |
11.6 |
17.6 |
17.6 |
|
Reported operating profit |
22.6 |
23.7 |
70.5 |
136.0 |
151.9 |
|
Net Interest |
(7.6) |
(40.1) |
(74.2) |
(34.3) |
(28.0) |
|
JVS and associates (post tax) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|
Exceptionals |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|
Profit Before Tax (norm) |
|
32.2 |
6.1 |
21.5 |
111.5 |
141.5 |
Profit Before Tax (reported) |
|
15.0 |
(16.4) |
(3.7) |
101.7 |
123.8 |
Reported tax |
(2.2) |
(6.3) |
9.2 |
(22.4) |
(27.2) |
|
Profit After Tax (norm) |
30.0 |
(0.2) |
30.7 |
89.1 |
114.2 |
|
Profit After Tax (reported) |
12.8 |
(22.7) |
5.5 |
79.4 |
96.6 |
|
Minority interests |
0.0 |
1.6 |
0.8 |
0.0 |
0.0 |
|
Discontinued operations |
0.0 |
(16.0) |
(8.4) |
0.0 |
0.0 |
|
Net income (normalised) |
30.0 |
1.4 |
31.6 |
89.1 |
114.2 |
|
Net income (reported) |
12.8 |
(37.1) |
(2.1) |
79.4 |
96.6 |
|
Basic average number of shares outstanding (m) |
21 |
22 |
21 |
22 |
22 |
|
EPS - normalised (NOK) |
|
1.41 |
0.07 |
1.49 |
4.11 |
5.27 |
EPS - normalised fully diluted (NOK) |
|
1.32 |
0.07 |
1.29 |
4.11 |
5.27 |
EPS - basic reported (NOK) |
|
0.60 |
(1.72) |
(0.10) |
3.66 |
4.45 |
Dividend (NOK) |
0.35 |
0.50 |
0.00 |
0.91 |
1.11 |
|
Revenue growth (%) |
(-2.2) |
15.2 |
26.7 |
15.5 |
9.9 |
|
EBITDA Margin (%) |
13.2 |
11.9 |
14.4 |
17.0 |
18.0 |
|
Normalised Operating Margin (%) |
5.1 |
5.2 |
8.5 |
11.2 |
11.8 |
|
BALANCE SHEET |
||||||
Fixed Assets |
|
394.6 |
438.6 |
469.9 |
427.3 |
422.5 |
Intangible Assets |
308.0 |
315.0 |
327.6 |
294.7 |
291.0 |
|
Tangible Assets |
59.6 |
81.5 |
80.0 |
70.2 |
69.1 |
|
Investments & other |
27.0 |
42.2 |
62.3 |
62.3 |
62.3 |
|
Current Assets |
|
432.0 |
467.1 |
641.6 |
795.0 |
914.4 |
Stocks |
94.8 |
135.4 |
197.1 |
236.1 |
275.0 |
|
Debtors |
141.4 |
191.7 |
262.7 |
300.5 |
330.1 |
|
Cash & cash equivalents |
176.2 |
91.8 |
135.7 |
206.8 |
253.4 |
|
Other |
19.6 |
48.2 |
46.1 |
51.6 |
56.0 |
|
Current Liabilities |
|
(213.3) |
(669.6) |
(407.9) |
(439.3) |
(457.3) |
Creditors |
(84.7) |
(149.2) |
(220.7) |
(252.1) |
(270.1) |
|
Tax and social security |
(38.7) |
(41.0) |
(49.2) |
(49.2) |
(49.2) |
|
Short term borrowings |
(1.4) |
(369.7) |
(10.8) |
(10.8) |
(10.8) |
|
Other |
(88.6) |
(109.8) |
(127.3) |
(127.3) |
(127.3) |
|
Long Term Liabilities |
|
(404.3) |
(72.6) |
(500.6) |
(500.6) |
(500.6) |
Long term borrowings |
(374.3) |
(43.2) |
(468.5) |
(468.6) |
(468.6) |
|
Other long term liabilities |
(30.0) |
(29.3) |
(32.1) |
(32.1) |
(32.1) |
|
Net Assets |
|
209.0 |
163.6 |
203.0 |
282.3 |
378.9 |
Minority interests |
0.0 |
(1.6) |
(2.4) |
(2.4) |
(2.4) |
|
Shareholders' equity |
|
209.0 |
162.0 |
200.5 |
279.9 |
376.5 |
CASH FLOW |
||||||
Op Cash Flow before WC and tax |
43.0 |
(22.2) |
(11.7) |
120.4 |
134.9 |
|
Working capital |
(18.6) |
(33.2) |
(43.1) |
(38.1) |
(30.3) |
|
Exceptional & other |
(6.2) |
28.9 |
50.1 |
(7.9) |
2.6 |
|
Net revenue deferred/(recognised) |
19.7 |
41.3 |
74.7 |
26.1 |
14.4 |
|
Tax |
(4.8) |
(14.4) |
(11.5) |
(22.4) |
(27.2) |
|
Net operating cash flow |
|
33.0 |
0.4 |
58.6 |
78.2 |
94.3 |
Capex |
(20.6) |
(27.8) |
(33.9) |
(22.0) |
(20.0) |
|
Acquisitions/disposals |
(43.3) |
(11.3) |
0.0 |
0.0 |
0.0 |
|
Net interest |
(11.9) |
20.2 |
38.5 |
2.6 |
2.6 |
|
Equity financing |
6.3 |
(17.8) |
0.9 |
0.0 |
0.0 |
|
Dividends |
(19.6) |
(7.6) |
0.0 |
0.0 |
0.0 |
|
Other |
109.7 |
(38.7) |
(20.7) |
12.3 |
(30.4) |
|
Net Cash Flow |
53.5 |
(82.6) |
43.3 |
71.1 |
46.6 |
|
Opening net debt/(cash) including leases |
|
275.1 |
213.9 |
338.9 |
362.1 |
291.0 |
FX |
(2.2) |
(0.1) |
(0.8) |
0.0 |
0.0 |
|
Other non-cash movements |
(112.6) |
207.8 |
(19.4) |
(142.2) |
(93.1) |
|
Closing net debt/(cash) including leases |
|
213.9 |
338.9 |
362.1 |
291.0 |
244.4 |
Source: Zalaris accounts, Edison Investment Research
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Research: Healthcare
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