eWork - Increasing EBIT is hard work with lower prices

Sales -9% y-o-y (-3% vs. ABGSCe) We cut ‘21-‘22e EBIT by 6-5% due to lowered GMs 16x ‘21e EV/EBIT & 19x P/E, 5% EBIT growth in ‘21e Another quarter of underlying recovery Sales continued to recover during the quarter (SEK 3,238m, -3% vs. ABGSCe). However, price adjustments on contracts made amid the pandemic hurt its gross margins; a trend we expect will continue in the coming quarters.

Importantly, some major accounts that cut back spending earlier this year have recovered during Q4’20. EBIT was SEK 19m, a -35% miss vs. ABGSCe of SEK 29m.

The lower EBIT was mainly explained by a tax dispute charge of SEK 7m and a SEK 4. 3m repayment of COVID-19 related furlough support. Adjusted for these items, EBIT was SEK 30.

2m, representing a 4% beat vs. ABGSCe. Positioned for further recovery in 2021 We expect sales to continue improving in all regions ahead, but we remain cautious for Finland.

eWork’s digital tool, Verama, is developing well and will likely continue to drive digitalisation and more efficiency for both eWork and its customers. Furthermore, the company highlights that the supply in terms of consultants on the market has recently increased, which suggests that demand is returning. In addition, we see two more factors that could pose tailwinds for its margins in 2021-2022.

First, we expect the sales mix to improve, with a higher share of sales coming from its matching business (which is margin-accretive). Second, we believe that investments related to its digital tools have peaked. That said, we think that the renegotiated contracts earlier in 2020 will continue to be a drag on its gross margins in H1’21e.

Ultimately, we forecast a 2021 adj. EBIT of SEK 111m, corresponding to +5% y-o-y. Slight downward revisions on EBIT We make modest revisions to our 2021-2022e sales forecasts but reduce EBIT by 6-5% due to lowered gross margin assumptions.

On our new 2021-22 estimates, eWork’s share is trading at 15. 5-14. 1x EV/EBIT and 19.

2-17. 1x P/E.