q.beyond AG
Strong growth & sequential margin improvement; chg. est & PT
Topic: q.beyond released a good set of Q2 results, once again marked by double digit top-line growth as well as a sequential EBITDA margin improvement, despite weakening market outlooks.
Q2 sales rose 10.5% yoy to € 46.4m (eNuW: € 46.3m; eCons: € 46.5m) driven by a continuously strong Cloud segment (+11.4% yoy to € 37.6m; eNuW: € 37.7m), the ongoing recovery of the SAP segment (+7.0% yoy to € 8.8m; eNuW: € 8.6m) as well as the consolidation of productive-data. The gross margin strongly improved qoq by 5pp to 17.8% (eNuW: 16.8%; eCons: 16.3%) thanks to the absence of one-offs in connection with provisions for workforce reduction as well as a slowdown of COGS growth, which more than offset increased costs for personnel, electricity and licenses.
Q2 EBITDA showed a strong sequential improvement, coming in at € 1m (eNuW: € 1.2m; eCons: € 0.6m) implying a margin of 2.2%. The strong profitability improvement was partially driven by the effects outlined above as well as reduced expenses for marketing and sales.
Q2 FCF came in at € -1.1m, indicating a neutral FCF (change in net liquidity) after H1. Against this backdrop, management raised its FCF outlook from > € -8m to > € -4m, which is sensible despite outstanding CapEx and outlays incurred to further implement the Strategy 2025 (eNuW: € -1.0m at YE).
Moreover, management confirmed its guidance for sales (€ 185-191m) and EBITDA (€ 5-7m). While the top-line guidance should be well in reach (5% yoy growth at mid-point), the EBITDA target looks rather ambitious, given € -0.2m as of H1. Still, in light of the ongoing implementation of the Strategy 2025, which includes an increased near-shoring ratio (20% until 2025) as well as the elimination of duplicate structures, and increasing other operating income (2.5% sales ratio in H2 vs 0.4% in H1), the company is seen to reach the lower end of the outlook (eNuW: € 5.1m; eCons: € 5.4m).
Valuation continues to look undemanding, especially after the recent share price weakness, as the stock is trading at 4.2x EV/EBITDA 2024e, marking a notable discount to the 2y forward-looking historic average of 8.5x. Should management deliver on their FY profitability targets, this should serve as clear catalyst for the stock.
We reiterate BUY with a new PT of € 1.20 (old: € 1.30) based on DCF.