Ework: Strong growth, but disappointing margins - ABG

Sales +19% y-o-y, but EBIT only grew 4% y-o-y Minor changes to sales estimates, but -11% on ‘22e EBIT 14x-11x ‘22e-‘24e EV/EBIT vs. peers at 14x-9x EBIT miss due to some unfavorable customer contracts
Ework has taken several internal steps forward in recent years, which, in combination with tailwinds from a strong market, it is now reaping the rewards from. Q2 sales of SEK 4.0bn grew 19% y-o-y and were -1% vs. ABGSCe. Most countries contributed well, albeit with a slight setback for Norway. Although sales grew strongly, gross profit of SEK 144m for a margin of 3.62% (-7bpp q-o-q) missed our forecast of SEK 148m. According to the company, some of its contracts carry fixed prices, resulting in margin pressure as hourly market prices are currently increasing rapidly (7% y-o-y in Q2). This dynamic surprised us, which is mainly why EBIT of SEK 35m, up +4% y-o-y, was below our forecast of SEK 46m. We believe that the main reason for some contracts having fixed prices is that Ework is attempting to gradually upsell more services from its recently broadened product portfolio. We expect to get more granularity into the matter, as the company is now looking to structure itself into four distinct service areas. As a market leader, Ework’s upselling opportunities should be good. Nonetheless, the Q2 results act as proof that we have overstated its business model’s near-term scalability.

We expect more gross margin pressure in H2 We expect more margin pressure in H2, albeit with continued rapid sales growth, as the IT services market remains strong. On the latter, we note the positive near-term outlooks from several other IT services firms, including Knowit and Avensia. As such, we keep our sales estimates largely unchanged. Our ‘22e EBIT, however, is cut by 11% due to 1) the Q2 shortfall, 2) lower gross margin assumptions, and 3) increased opex estimates.

Share is trading largely in line with its own history On our new estimates, Ework is trading at 14x-11x ‘22e-‘23e EV/EBIT. For comparison, its last 4Y f12m average is 13x, while its peer group is trading at 14x-9x on ‘22e-‘23e. ... Läs mer på ABG Sundal Collier

Länk till analysen i sin helhet: https://cr.abgsc.com/foretag/ework/Equity-research/2022/7/ework---strong-growth-but-disappointing-margins/