BTS Group: Eyes on North America going into Q3e - ABG

Guidance upgrade, but slightly softer comments into H2e EBITA +9% (2% org, 7% FX), expect lower growth ahead 14.3x EV/EBITA 2023e vs 5-year average 16.7x

Q2 beat driven by Europe while US saw slowdown Although BTS delivered an 8% EBITA beat vs ABGSCe in Q2 and upgraded its FY guidance, management also commented on a slowdown in demand toward the end of the quarter in the US operations. This was related to software clients in the San Francisco office, which has experienced slower revenue growth, significant market cap reductions, and increased pressure from investors to reach profitability faster. This has caused some postponements and cancellations for BTS North America, and the 14% organic growth in Q2 (vs ABGSCe 18%) is expected by management to come down in H2 (we have 8% in Q3e and 12% in Q4e). We are not fully surprised by this: as we had already expected growth to come down in H2e in North America, we leave our estimates relatively unchanged. The Q2 beat was entirely driven by Europe, where BTS had a broad-based strong momentum and an impressive 28% EBITA margin in the quarter, for an EBITA coming in 81% ahead of ABGSCe.

Underlying estimates up 2%, FX lifts another 7% in 2023-24e Because we already expected BTS to raise its FY EBITA guidance to “significantly better than” 2021 from “better than”, and we keep our estimates for a US slowdown in H2e, we end up raising our underlying EBITA estimates by 2% driven by the Q2 beat. As we update with a stronger USD (majority of sales), we also lift estimates another 7% in 2023-24e from favourable FX movements.

Valuation below 5-year average BTS operates a cyclical business but has historically managed to handle macro downturns relatively well. This time, the US tech exposure has a negative effect on the current momentum, while other parts of the business remain strong. We are keeping an eye on economic activity and also comments from BTS on net recruitment ahead to understand growth expectations. The current valuation of 14.3x ... Läs mer på ABG Sundal Collier

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