Sanoma extensive report: The sun is starting to shine

Translation: Original published in Finnish on 03/31/2025 at 08:45 pm EEST

With the growth in the Learning business and extensive efficiency program, we expect Sanoma's earnings to grow significantly in the coming years. Our confidence in the realization of earnings growth through revenue growth has strengthened, while the share valuation is moderate. These factors, together with the overall more moderate risk profile of Sanoma, constitute an attractive risk/reward ratio in our view. Reflecting this and the estimate changes, we raise our target price to EUR 10.0 (was EUR 9.0) and reiterate our Accumulate recommendation.

The relative weight of the Learning business is clearly higher

Sanoma's Learning business, which has expanded in Europe, has increased the share of stable and predictable business to more than half of the company's revenue. Thanks to the higher margin of this business, the Group's profitability potential has also increased. At the same time, the role of the Media business has decreased and, in particular, the relative share of declining print media has shrunk (2024: 19%). We expect this trend to continue in the medium and long term as a result of the growth of the Learning business, and we estimate that the quality of the Media business will strengthen as the digitalization rate of income increases.

We expect clear earnings growth in the coming years

We estimate that the growth potential of the Learning business is within the 0-5% range, while the Media business growth outlook is relatively stable. Thus, we forecast the company’s medium- and long-term growth rate to be approximately 2%. In our view, the company will continue to accelerate growth through acquisitions, particularly in the Learning business. The goal of doubling the Learning business by 2030 requires the company to make several acquisitions in the second half of the current decade. The outlook for this year is relatively stable, but we forecast a level increase in Sanoma’s profitability in 2026. This is mainly due to the significant Solar efficiency program and the timing of curriculum reforms in the learning business. In the Solar program, the company has focused on streamlining operations and developing processes following major corporate reorganizations, and 80% of the work was already completed by the end of 2024. Thanks to this, we are confident in the effectiveness of the program, as the revenue of the Learning business will turn to growth in 2026-2027. Reflecting these factors, we expect significant earnings growth from the company in the coming years (2024-2027 EPS CAGR-% 16%). The key risks to our estimates are a re-acceleration of inflation, the development of consumer purchasing power, and the scale of the earnings benefits realized from the Solar program.

Earnings growth and dividend create an attractive expected return

With the low earnings level of the current year, the share valuation is slightly elevated (2025e adj. P/E 16x and EV/EBITA 12x). However, the earnings growth we expect will push the P/E ratios for 2026-2027 to 12-11x and the corresponding EV/EBITA ratios to around 9x. Thus, the expected earnings growth will act as a significant driver of the expected return. Together with a dividend yield of just under 5%, earnings growth will raise the expected return substantially above the required return. We consider Sanoma's risk profile to be more moderate than average, which makes the stock's risk/reward ratio attractive in our view. The valuation framework formed by the DCF model and sum of the parts calculation (EUR 10.0 and EUR 9.0 per share) support our view that the stock is attractively priced.