SJR - Gradual improvement during Q1
Profitability has bounced back Positive estimate revisions on higher margins Share trades at EV/EBIT 11.0x for ’21e Q1: sales -5% y-o-y, EBIT margin of 6.6% (3.5%) SJR reported Q1 net sales of SEK 96.8m (-5% y-o-y), which was slightly below our forecast of SEK 97.6m. Although sales declined y-o-y, the positive trend from Q4’20 continued, with a lower y-o-y sales decline than the previous quarter. The trend was also evident during Q1, with March being the strongest month. Market conditions continued to strengthen at the beginning of Q2 in all of SJR’s regions.
EBIT was SEK 6.4m (3.6m), corresponding to an EBIT margin of 6.6% (3.5%). It was clearly ahead of our forecast 4.3% and the deviation was mainly explained by internal efficiencies in terms of lower other external costs. SJR ended Q1 with a cash position of SEK 53.6m: approximately SEK 21m of that will be distributed as dividends during Q2.
Improvement continued in April We keep our sales forecasts unchanged, but increase our margin assumptions on the back of the Q1 report as we were impressed with the cost control in Q1: the margin improvement was achieved despite the recruiting business share of revenue declining y-o-y (12% vs 13% in Q1’20). That results in EPS increases of 11-6% for ’21e-’23e. We now forecast an EBIT margin for the full 2021 of 7.1%, improving to 9.3% in ’23e as we think the share of recruiting income will gradually increase as market conditions improve following the COVID-19 recovery.
Recovery in recruiting segment will be key to lifting margins SJR has historically been able to achieve an EBIT margin above 10%. We argue that a key to higher profitability will be that recruiting revenues continue to improve, as that part of the business has a higher margin. Long term, we think it can exceed 15% of total revenue; in Q1 it accounted for 12% (13%).
On our revised ’21 estimates, the share trades at a P/E of 15.7x, EV/EBIT of 11.0x, and with an assumed dividend yield of 4.7%..