BTS Group: Few signs of a slow down in Q3 - ABG
Q3 miss isolated to the US, which should improve in Q4
Looking at 2008-10, FX adj. sales fell 19% at worst
We cut adj. EBITA by 6-14% on more cautious growth stance
Q3 tech weakness in the US seems to be behind us
The Q3 EBITA miss (-21% vs ABGSCe) was primarily driven by weaker growth and margins in the North America segment. Management explained that there were some postponed and cancelled projects for the US tech sector that caused 1% FX-adjusted growth for the segment, and therefore a margin decline y-o-y. However, BTS also clearly stated that the weakness is mostly behind us, and it expects to grow again in North America in Q4. In the Europe and Other market segments BTS delivered strong 26% and 23% FX-adjusted growth rates, respectively. Management also said that it has not yet seen any signs of slowing growth rates, and given the positive guidance about North America into Q4 we remain relatively positive towards the end of the year. In this report we have also looked at BTS’ performance during 2008-2010 to get a feeling for potential recession impacts. We note that the worst growth quarter was Q2’09 (-19% FX-adj. growth y-o-y), while the R12m EBITA margin only dropped by 2pp (from 15% in Q4’08 to the trough 13% in Q1’10), although performance varied across business segments. Notably, the group FX-adj. growth rate remained negative for only two quarters before it bounced and grew +10% quickly. This time, BTS commented that its pipeline looks strong for Q1 (with sessions around “recession resiliency” and how to grow in tougher markets), which we think shows that BTS remains highly relevant as a consultant even in weaker markets, although it initially shows a decline in revenues.
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