• We lower '24e-'26e adj. EBITA by 35-1%
• Potential for utilisation improvement in H2'24
• '24e-'25e EV/EBITA of 12-6x

It's still tough out there

Q1 was undoubtedly a tough quarter for B3, and seemingly also for other IT consulting businesses. B3's sales and EBITA declined by 12% and 57% y-o-y, respectively. Compared to FactSet consensus, B3's sales were 6% below expectations while adj. EBITA missed by 18%. Utilisation continued to decline sequentially in Q1, but was supported by a stronger March. We would, however, need a few quarters' worth of data from both B3 and macroeconomic indicators to make judgment on whether the utilisation rates have stabilised.

Adj. EBITA estimates down

We cut '24e-'25e sales by 4-1% and leave '26e sales virtually unchanged, while we cut '24e-'26e EBITA by 35-1% on the back of the report. April's macroeconomic data for IT consultants in Sweden continues to show a sequential decline in general demand, and that suggests that continued weakness in utilisation should be expected. Similarly, net recruitment is now crossing into negative territory, and that is a significant headwind for sector-wide growth in '24e. In B3's case, the upcoming headcount reduction is aimed at employees on long-term absence. This should increase B3's utilisation, all else equal. That said, it will only partially protect the margin and not growth, which we assess is reflected in our -7% growth rate for '24e. Our view of the company remains unchanged because we assess that the current problems are sector-wide rather than company-specific.

Valuation

Based on our revised estimates, the company is trading at 12-6x '24e-'25e EV/EBITA, which is in line with current peer multiples but ~25% below the historical average for Nordic IT services peers on an NTM basis. We reiterate our fair value range of SEK 130-200.