Avensia: Investing for the future - ABG

Sales 13% y-o-y but 4% below ABGSCe Several new growth initiatives result in EBIT cuts 15x-11x ‘22e-’23e EV/EBIT vs. peers at 14-11x Weaker-than-expected margins
After four consecutive quarters with easy comps, Avensia faced tougher numbers into Q2 in light of 27% y-o-y growth in Q2’21. Even so, Q2 sales of SEK 110m were up 13% y-o-y (-4% vs. ABGSCe at SEK 115m), largely driven by price increases and higher capacity. Adj. EBIT was SEK 3m (vs. ABGSCe SEK 6m) for a margin of 2.8%, down from 7.0% in Q2’21. The lower margin y-o-y was explained by salary inflation together with increased costs relating to growth initiatives (sales and marketing expenses, etc.). While the weaker margin surprised us, we note that Avensia’s peer Knowit also reported solid growth, albeit with margin pressure vs. Q2’21. Avensia guides for growth-related costs to stay elevated in H2, but then gradually decrease in 2023. We think that Avensia’s decision to launch these initiatives suggests that it continues to see a strong market in the near term.

Promising net recruitment outlook for Q3 Headcount grew by 5 employees q-o-q (ABGSC +8), reflecting continued scarce market supply in terms of IT services competence. That said, Avensia has recruited 29 people that will start in August, which is why we estimate a sequential headcount increase of 20 in Q3e (i.e. net after personnel attrition). Although we caution that IT investments may decline in ‘23, we argue that Avensia’s e-commerce niche makes it more resilient than many other IT services firms. Even so, we lower ’22e-‘24e sales by 3-4% on a more cautious view. This, together with increased cost assumptions, leads to 22-12% cuts on our corresponding adj. EBIT forecasts. For ‘22e, we now estimate 18% sales growth, down from 23% in ’21 on tough comps. We see an adj. EBIT margin of 7.3%, which also represents a contraction from 2021, mainly due to cost inflation.

Avensia now trading in line with peers On our new estimates, Avensia is trading at 15x-11x ‘22 ... Läs mer på ABG Sundal Collier

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