BTS Group: Focus on North America and 2023 outlook in Q4 - ABG
North America focus in Q4
When BTS reported its Q3 the organic growth in its biggest segment, North America, was only 1% amid some software clients pausing projects in the quarter. The outlook for Q4 was that this activity should come back, and we therefore anticipate North America organic growth of 10% in Q4, helping the group organic growth rate in Q4e to improve to 11% from 9% in Q3. Even though Europe and Other Markets were strong in Q3, we are slightly more cautious on Q4 growth (although we have seen positive signals in general from large companies in the Q4 reporting period so far). As a result of somewhat higher opex y-o-y, we estimate a Q4 adj. EBITA margin of 16.6% (17.5%) for a total adj. EBITA growth of 25% y-o-y. We make no estimate changes in this preview.
Positive outlook with potential to upgrade during 2023
BTS provides FY guidance that is either "the same", "better than" or "significantly better than" the previous year's adj. EBITA. We estimate a 7% adj. EBITA growth in 2023e vs 2022, which corresponds to an outlook of "2023 earnings to be better than 2022". Based on how the global economy and the corporate spending on management consulting and transformation projects develops, we find it relatively likely that BTS would like to leave the option to upgrade its guidance during 2023, as it has done several times before.
17% adj. EBITA CAGR at 16.7x 2023e
The need for large global corporates to change drives demand for BTS' consulting services. We argue that this is clearly what is happening in the world today, which is supportive for growth. On the other hand, short-term spending cuts in conjunction with lay-offs can cause project halts and postponed revenues, but BTS has always had a long-term focus and we foresee a bright future. The share trades at 16.7x EV/EBITA 2023e.
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