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.