Ework Group
eWork - Another quarter with good margin resiliency (ABG Sundal Collier)

2020-10-22 21:56
Sales -1% vs. ABGSCe, but EBIT came in 42% above
2021e EBIT up by 11% on lower cost assumptions
13x 2021e EV/EBIT, 11% EBIT growth in 2021e
Solid margin resiliency
eWork Group achieved Q3 sales of SEK 2,467m, corresponding to -11% and -1% vs. ABGSCe SEK 2,487m. The lower sales y-o-y mainly related to Sweden (-11% y-o-y) and Finland (-28% y-o-y), as both Denmark (+3% y-o-y) and Norway (+14% y-o-y) reported positive growth. The sales composition was largely in line with our forecast, although Norway reported better sales than we had expected. Gross profit was SEK 89m (ABGSCe SEK 89m) for a margin of 3.6%. Despite the lower sales, eWork was able to report flat EBIT vs. Q3’19, driven by quick-tempered opex reductions (-17% q-o-q). This led to an EBIT beat of 42% against our forecast.

Small sales est. revisions, but we lift our ‘21e EBIT by 11%
Overall, we make small revisions to our 2020-2022e sales forecasts, but raise our 2020-2021e EBIT by 11% and 2022e EBIT by 6%. This stems from the Q3 EBIT beat, together with eWork’s cost savings programme where it aims for SEK 50m in opex reductions vs. 2019 (full effect in 2021).

Sales growth should improve in the coming quarters
Already before the pandemic, we argued that eWork should be able to increase its market share in 2020 due to 1) it had made large investments in its product portfolio; and 2) the Nordic IT services market started to show negative signs, meaning that eWork was likely to benefit from its market-leading position. Based on data from Brainville, eWork has increased its market share from 18% in H2’19 to 22% in H1’20. Given that the Nordic services market remains relatively weak, we believe that these two assessments remain valid over the next couple of quarters. Therefore, we see a trajectory of improved sales growth ahead. On our new 2021 estimates, eWork’s share is trading at 13x EV/EBIT coupled with a lease adj. FCF yield of 6%.


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