Lower subcontracting business – improved margins

Soft ending to 2018, eyes now on 2019

When can we expect growth again?

Sales decline continues – EBIT margin up 40bp
Hifab in Q3 continued on a similar path as seen in Q2 with improved internal efficiencies, as EBIT increased y-o-y despite decreased sales. Full-time employees for the quarter amounted to 289 (down from 304 in Q2), which explains the deviation versus our sales estimate (-7% vs. ABGSCe). Declining volumes from the International segment continued to weigh on growth, together with lower volumes from subcontracting businesses. The latter, however, resulted in improved margins, as most of the previous subcontracting was rather unprofitable. The group EBIT margin was in line with our expectations of 1.2%, up 40bp from last year.

Lower assumption for number of consultants
It seems that 2018 will end on a softer note for Hifab, and sights must be set on next year. The lower number of consultants in the quarter surprised us, and we therefore cut our sales expectations by 4%. Although we believe that the top line should be able to stabilize in 2019, we currently do not expect growth to pick up until H2’19, with increased utilization and a larger number of new consultants. Moreover, we also lower our margin expectations. For ’18e, we lower our EBIT margin to 4.1% as we believe that the build-up of a new business unit will hamper margins in the coming quarter, together with a larger than anticipated calendar effect. The balance sheet still looks clean, with NIBD/EBITDA of -1.3x offering room for further acquisitions.

Trading at low multiples, and ~6% yield
On our current estimates, Hifab is trading at discounts of 23% on P/E and 40% on EV/EBIT 2019e versus its key peers, and with a yield of ~6%. Moreover, before the revisions following the Q3 report, Hifab had traded at a 21% discount to its two-year historical average on 12M-forward P/E.