Ework Group: Grace under pressure - ABG

- Slower recovery, but positive gross margin trend
- We lower '24e-'26e adj. EBIT by 4%
- Poised for improved profit growth, 10x '25e EV/EBIT

Tough market, but some positive signs
The Nordic consultancy market has been weak for >18 months. Although we saw positive signs in Q2, the sequential delta in Q3 was slower than we expected, with Q3 sales 8% below our forecast. There are big differences between the various end-markets, with Ework facing headwinds from the historically resilient public sector (19% of sales), while retail, life sciences and finance are showing healthy signs. However, after five consecutive quarters of declining metrics, orders were up 6% y-o-y, suggesting that demand is gradually recovering. While these are all market-related issues, Ework continues to take steps to strengthen its market position and improve margins, driven by its new operating model, which is improving efficiency. As a result, although sales were down 11% y-o-y, adj. EBIT grew 3% y-o-y thanks to a better mix and recent cost savings. However, this was 7% below our forecast due to lower sales.

Estimate revisions
We cut '24e-'26e sales by 4-7% from lower growth assumptions, driven by a slower-than-expected recovery combined with our view that Ework will increasingly focus on higher-margin projects than in the past. The latter, combined with recent cost savings and the new operating model, bodes well for margin expansion. Nonetheless, we have lowered '24e-'26e adj. EBIT by 4% due to lower sales.

10x '25e EV/EBIT adj.
The share is trading at 10x '25e EV/EBIT (vs. peers at 11x-12x), which is slightly below its 10Y avg. of ~12x. Although our current forecasts only call for a gradual recovery in revenues over the coming quarters, we expect margins to improve for the reasons mentioned above, leading to solid earnings growth.

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