Profits surge at Baltic Classifieds

Baltic Classifieds (BCG), the FTSE 250 group which operates advertising portals across Lithuania, Estonia and Latvia, has enjoyed another year of double-digit growth. Sales rose by 19 per cent to €72.1mn (£61mn) in FY2024 and operating profit jumped by almost a third to €38.3mn. 

Few UK investors will be familiar with Baltic Classifieds’ websites, which allow customers to place ads for cars, property, jobs and 'generalist' products and include Autoplius, Auto24 and Aruodas. However, traffic remains high at around 56mn visits per month, meaning the average Baltic states resident visits one of the company’s sites 10 times every month.

Growth was driven by a number of factors in 2024, including higher take-up of premium listing packages, products taking longer to sell, “unprecedented” growth in the number of ads placed by consumers and a more modest increase in business customers. Crucially, management also increased the price of advertising, which boosted yields across all business lines.

All of this is having a positive effect on Baltic Classifieds’ balance sheet. Leverage has reduced from 2.75 times when it listed in July 2021 to 0.5 times at the end of April 2024. Meanwhile, €49mn of cash has so far been returned to shareholders, and management boosted the final dividend for 2024 from 1.7ȼ to 2.1ȼ. 

There have also been positive developments on a regulatory front. The Estonian Competition Authority has terminated its investigation into the group’s real estate and auto platforms, concluding that they have not set unfairly high prices for the services they offer. There is one remaining supervisory proceeding with the regulator, which has been lingering since autumn 2022.

The big question when it comes to Baltic Classifieds is valuation. Based on forecasts for the current year, it trades on a price/earnings ratio of over 25 times. In contrast, sector stalwarts such as Rightmove (RMV) and Auto Trader (AUTO) trade on 19 times and 24 times, respectively.

It is important to remember, however, that Baltic Classifieds is at a much earlier stage of growth with plenty of monetisation opportunities ahead of it. Revenue growth is expected to reach 15 per cent in FY2025 and analysts at Investec argued that it could achieve earnings growth of 20 per cent a year for “many years to come” because of its “numerous and impressive” organic profit levers. For now, therefore, we stick with buy.

Last IC View: Buy, 168p, 29 Jun 2023