Q1: Sales +10% y-o-y, but -4% vs. ABGSCe

Negative revisions stemming from Iceland

Share currently trading at EV/EBIT 8x for ’19e

Mixed blessings for the different segments
Capacent’s sales in Q1’19 amounted to SEK 71.3m, 4% below our estimate. The company’s Finnish operations reported a strong quarter (50% growth y-o-y, and EBIT margin of 30%), while Sweden experienced a slower start. The completion of several larger projects within its core business, coupled with delays on new projects, hampered the Swedish performance in Q1. Iceland grew net sales by 10%, despite a tougher economic climate in the aftermath of the default of Iceland’s second largest airline. Nevertheless, group EBIT amounted to SEK 4.5m, implying a margin of 6.3%. The margin was 2.5pp below our expectations, mostly derived from higher costs in Iceland, and lower utilisation in Sweden.

Widening its portfolio of competencies with Interim
As more projects have been initiated, we believe Sweden has had a better start to Q2, and we thus expect an uptick in growth and utilization. Furthermore, Capacent announced the launch of its new offering, Interim, which will widen its platform of competencies. In our view, the investment makes sense and shows clear potential synergies with the other business operations. Naturally, the cost base will temporarily increase in the start-up phase. In addition, management expects a progressive improvement in earnings in Iceland as it initiates measures to restore profitability. Nevertheless, we raise our cost assumptions slightly for Sweden and Iceland for the rest of the year. This leads to our EBIT revision of -11% for ’19e. We note that the bigger negative impact on EPS is mainly attributable to the implementation of IFRS 16.

EV/EBIT 8x for 2019e
At the current share price, the share is trading at EV/EBIT 8x and EV/S 0.6x for ’19e, 34% and 52% below consultancy peers, respectively.

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