Avensia: Another adj. EBIT margin beat - ABG

Sales up 26% y-o-y, -3% vs. ABGSCe
We lift ‘22e adj. EBIT by 3%
16x-13x ‘22e-‘23e EV/EBIT

12.3% adj. EBIT margin (ABGSCe 10.6%) vs. 11.0% in Q1’21
Avensia continued its strong growth trajectory in Q1, with sales growing 26% y-o-y, to SEK 117m. This was 3% below ABGSCe of SEK 120m. The strong results were from a good performance on a continued strong IT services market, where we note several of its peers have also issued strong Q1 reports, for example Knowit posting 10% (PF) organic growth y-o-y, Softronic 11% y-o-y, CAG 12% y-o-y, and Ework +24% y-o-y. We note that Avensia grew revenue per employee by 14% y-o-y, suggesting an improved utilisation. Adj. EBIT was SEK 14m for a margin of 12.3% (ABGSCe SEK 13m for a margin of 10.6%), up from 11.0% in Q1’21. This was the fifth consecutive quarter with better margins than expected. The headcount grew by 2% q-o-q, to 325, slightly below our forecast of 331.

We expect the market will be slightly cooler in H2’22
We continue to expect demand to remain strong in the coming quarters, albeit with a somewhat cooler market for H2 than previously anticipated due to recent geopolitical events and, consequently, less willingness to investment. Here, we note that Radar recently downgraded its 2022 expectation for the total Swedish IT budget from 2.6% growth to 1.6%. Overall, we make small revisions to our forecasts, trimming ’22e-’24e sales by -1-0%. We lift ‘22e adj. EBIT by 3% on the Q1 beat but trim the corresponding ’23-’24 forecasts by 1%.

’21-‘24e sales CAGR of 18%, 16x ‘22e EV/EBIT
We now forecast Avensia to deliver ’21-‘24e CAGRs in sales and adj. EBIT of 18% and 22%, respectively. The share is trading at 16x ‘22e EV/EBIT, which is above its historical 3-year average of 14x and Nordic IT services peers at 13x. While comps have been easy for four consecutive quarters, we note tougher comps in Q2. Even so, we expect 20% adj. EBIT growth in 2022.
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