Sales up 11%, 8% above ABGSCe

Remember that Q3 is a small quarter

EV/EBIT 9.1x for 2020e

Quick turnaround, especially on margins
SJR reported net sales of SEK 100.4m (90.6m), corresponding to y-o-y growth of 11% and 8% above ABGSCe. It was in sharp contrast to the previous four quarters that have seen growth between +1% and -1%. The deviation towards our forecast was driven by higher recruitment sales than expected, but we are a bit cautious to extrapolate going forward. Q3 is a small quarter for a consultancy firm and a minor deviation in sales will influence the growth rate more than in the other quarters, which is why we remain a bit cautious. The EBIT margin amounted to 9.9% (10.4%) and was much stronger than ABGSCe at 3.0%. The deviation was driven by the sales beat in conjunction with a larger share of revenue from recruitment, which has higher margins.

We are still cautious on sales growth
Following the report, we make minor sales revisions, as we would like more evidence of the magnitude of the recovery in a larger quarter. However, we do raise our EBIT margin assumptions for 2020e by 1.1 percentage points, as we believe the improved profitability is here to stay. This results in a positive EBIT adjustment for ’20e of 14%. During the last couple of quarters, SJR has trimmed its costs and now we can see the effect of that working. We believe SJR has a good chance of returning to historical EBIT margins of around 10%, and in the long-term it might even exceed that as the share of recruitment income is higher than before.

Higher share of recruitment means higher margins
The share has bounced back after the report and has outperformed the OMXSTHPI by ~20% in the last month. It now trades at an EV/EBIT of 9.1x for 2020e, which is a bit below its historical average of around 10.0x. We see upside to estimates if margins continue to strengthen in Q4 but are more cautious on the growth prospects.

info@introduce.se (Introduce.se)

ABG Sundal Collier - Introduce.se