eWork - Encouraging gross margin improvements

Sales -3% vs. ABGSCe, but strong beat on EBIT We raise ’21e-’23e EBIT by 13-7% 13x ’21e EV/EBIT and 17x P/E Gross margins improved well versus Q1 eWork had a good start to Q1. The number of consultants in the field continued to recover, declining by -3% y-o-y vs. -7% in Q4’20.

Although sales of SEK 3,165m were -7% y-o-y and -3% vs. ABGSCe, adj. EBIT came in at SEK 31m, representing a 48% beat vs.

our forecast of SEK 21m. The main explanation was a stronger-than-expected gross margin of 3. 7% (ABGSCe at 3.

3%), as opex was +1% vs. ABGSCe. The gross margin was driven by an improved sales mix, with a larger share of revenue stemming from the margin-accretive matching business.

We assess this as a strong metric, especially considering that the pressure on gross margins from price adjustments on some contracts made in 2020 likely continued in Q1. Management says there was a strong recovery in all markets except Finland, where market conditions remain challenging. eWork now reports Poland as a separate business unit; it saw Q1 sales of SEK 105m, +6% y-o-y.

Better market conditions and higher margins on the horizon We remain cautious regarding Finland but expect all other markets to continue to improve. The Q1 results reinforced our previous assessment that gross margins have troughed after a long period of declines. The company has an improved offering, having invested heavily in its digital platform (Verama) in recent years.

Verama now hosts more than 50,000 active users, which we think suggests that the platform is enjoying solid momentum. We lift our EBIT forecasts on higher GM assumptions We keep sales relatively unchanged (-1% for ’21e, ’22e and ’23e, respectively) but raise our ’21e-’23e EBIT by 13-7%. The latter mainly reflects our raised gross margin assumptions.

On our new forecasts, eWork’s share is trading at 13. 3x ’21e EV/EBIT and 17. 3x P/E.

After a weak 2020 due to the pandemic, we expect eWork to generate a 14% EBIT CAGR for ’20-’23e.