Baltic Classifieds shares plunge as company warns of compressed margins

(Sharecast News) - Baltic Classifieds Group reported higher first-half earnings and revenue on Thursday, but warned that increased investment in product and data initiatives would compress margins, sending its shares sharply lower. The FTSE 250 group, which operates online classifieds platforms across Lithuania, Latvia and Estonia, posted revenue of €44.8m for the six months ended 31 October, up 7% from a year earlier, with core business-to-consumer and consumer-to-consumer revenue streams contributing 91% of the total.

EBITDA rose 7% to €35.2m, maintaining a margin of 78%.

Chief executive Justinas Šimkus said the business achieved strong growth outside Estonia's auto segment, which has been hit by tax changes and reduced vehicle transactions.

"Aside from the tax-affected Estonian auto segment, we delivered strong double-digit revenue growth, with our core revenue streams - B2C and C2C - up 15% and 8% respectively," he said.

He added that the group's pricing strategy and product enhancements position it "well for growth in the second half of the year and into the next financial cycle."

However, market reaction turned negative after Baltic Classifieds cautioned that investment in product and AI-driven improvements would erode profitability.

"With lower revenue growth and continued investment into our product, some EBITDA margin compression is inevitable," the company said in its outlook statement.

The warning overshadowed the shift to a net cash position of €5.1m, up from net debt of €3.6m a year earlier, and an 8% increase in the interim dividend to 1.3 euro cents per share.

Analysts noted that while the operational performance was solid, the communication around margin guidance unsettled investors.

Panmure Liberum's Sean Kealy said today's statement was "very poorly written," adding that "such poor quality communications alongside a warning is unhelpful."

He expected a 6% to 7% cut to 2026 earnings forecasts but argued the "stock remains cheap and would still be buyers, even with a 7% cut to Ebit on increased investment costs."

Jefferies analyst Giles Thorne said the outlook suggests increased spending will drag on profitability, noting that the statement now refers to product, data and AI investments leading to "inevitable margin compression," although over an undefined period.

He expected about 2% pressure on 2026 revenue forecasts and roughly a 4% impact on EBITDA.

JPMorgan's Marcus Diebel struck a more negative tone, arguing that the investment plans point to a weaker margin profile beyond next year.

"The results may be solid from a top-line perspective, but will likely to drive continued negative sentiment in the classifieds sub-sector," he wrote, estimating mid-single-digit downgrades to consensus for 2027.

Baltic Classifieds said second-half revenue growth would exceed that of the first half and accelerate into double digits in the 2026 financial year, led by real estate and automotive platforms.

The company also reiterated its intention to return excess cash to shareholders, including through dividends and buybacks, and said it could be debt-free by year-end.

At 1034 GMT, shares in Baltic Classifieds Group were down 16.81% at 182.6p.

Reporting by Josh White for Sharecast.com.