Ework: Broad Q3 beat and still strong demand - ABG

3% sales beat and better GM drove 49% adj. EBIT beat


We raise ’22e-‘24e adj. EBIT by 21-5%


11x ‘22e-‘23e EV/EBIT, ‘21-‘24e adj. EBIT CAGR of 13%


Broad-based growth in Q3 driving group sales +24% y-o-y
Ework’s Q3 report was strong across the line. The company stayed on its recent growth trajectory, with sales rising 24% y-o-y (of which price ~6%), 3% ahead of ABGSCe. While all regions contributed well, Poland had a particularly strong quarter, driven by companies looking to outsource consultancy services outside the Nordics. We expect this trend to continue in the coming quarters. Unlike in Q2, when gross margins saw pressure due to unfavourable contracts, gross margins improved 33bp q-o-q on a better sales mix, leading to gross profit 14% above ABGSCe (and up 32% y-o-y). Although the gross margins have historically been volatile on a quarterly basis, we expect the metric to stay solid in the coming quarters. On the back of the strong gross margin, adj. EBIT grew 58% y-o-y to SEK 37m, 49% ahead of our forecast.

Positive earnings revisions on higher sales and GMs
We raise ‘22e-‘24e adj. EBIT by 21-5% on the back of 3-1% higher sales estimates, slightly raised GM assumptions, and lower D&A following the Q3 results. Although we note that demand in Q3 seems to have been solid for most Nordic IT services companies, we expect a slowdown in growth in 2023e as the prospect of recession looms. For Ework, we now look for 7% growth in ‘23e, down from 21% in ‘22e.

Being a market leader is firmly supportive
Historically, the IT services market has not been unharmed during economic downturns. However, Ework, being in the IT consultancy broker niche, should benefit from the fact that it holds a market-leading position in a fragmented market, in which smaller competitors should perform worse due to lower network effects. Ework’s share is trading at 11x ‘22e-‘23e EV/EBIT on our new estimates, which is ~15% below its historical (4Y avg.) f12m multiple.

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