Sales growth of 19%, 0% vs. ABGSCe

Once again contracting gross margins

15.5x P/E & 4.8% FCF yield on ’19e

Sweden and Norway lead the way
On the back of somewhat easy comps in Q1’18, sales grew SEK 19.3%, reaching SEK 3,128m at 3.96% gross margin (-11bp q-o-q). This was 0.4% above our forecast, but 10bp below our gross margin estimate. Due to lower capitalisations and higher depreciation and amortization (D&A), EBIT was also lower than ABGSCe (-20%). Similar to previous quarters, the Swedish and Norwegian markets continued to progress well, with the latter up 55% y-o-y. Furthermore, Denmark’s declining growth rates slowed down, while Finland was flat LFL. Even so, eWork has started to see signs of a cooling market, more so in Sweden. Given eWork’s large size, we believe that such observation serves as a good proxy for the general market trend, and thus its own operations.

Reduced EBIT due to lower gross margin assumptions
In Q4’18, we saw a stabilising gross margin from the previous quarter. The same occurrence was not seen in Q1, as the gross margin once again returned to its declining trajectory. This mainly stems from a higher share of sales from larger customers – a mix we think is here to stay. Although an increased selling of eWork’s digital solution VMS (which is starting to gain traction with three new signings in the quarter) should have a mitigating effect, we therefore reduce our gross margin forecast for ’19e-’21. Furthermore, in light of a weakened market, we make modest cuts on sales. Yet, as sales slow down, we believe that eWork will adjust its opex accordingly. We believe that the reduction in personnel in Q1 was the first indication of this, but we think such actions take time. Thus, in combination with increased D&A due to IFRS16, we have reduced our estimated EBIT for ’19-’21e by 10-18%.

6.1% dividend yield with ROE >55%
Our revised forecast calls for ’18-‘21e sales CAGR of 11% and an EBIT margin that expands from 1.0% in 2018 to 1.2% in 2020e. The share
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