q.beyond will release its Q3 report on November 11th. We expect a further positive development, as well as an improvement in the consulting segment. Here is what to expect:
Q3 sales are seen to increase by 4.1% yoy to € 47.3m (eNuW). The main driver should again be the managed service segment, where we expect sales to grow by 6% yoy to € 32.8m with a stable segment gross margin of 21% (eNuW). Moreover, we expect a sequential improvement in the consulting segment with sales being flat yoy at € 14.5m (eNuW). While the company is still trimming the segment on efficiency, thus reducing the amount of low-margin projects, we estimate an improved utilization, allowing for a stable segment gross margin of 6.5% (eNuW). Keep in mind, that management targets to substantially increase the consulting margin going forward, driven by an increased utilization as well as a higher near- and off-shoring ratio (target: 20%; eNuW: 14% at Q3 '24e). Overall, we expect the gross margin to be stable at 16.6% (eNuW).
Against this backdrop, Q3 EBITDA looks set to come in at € 2.2m (eNuW; Q3 '23: € 0.1m), implying a margin of 4.3%. Next to the already imposed measures regarding near- and off-shoring the strong yoy improvement is driven by the continuous implementation of the One q.beyond strategy, leading to cost reduction in sales & marketing as well as G&A.
On this basis, we expect management to confirm the FY guidance of € 192-198m sales (eNuW: € 193m), € 8-10m EBITDA (eNuW: € 9.3m) and positive FCF (eNuW: € 5.6m). While our EBTIDA estimate might look bullish at first sight, mind you that QBY's strongest quarter is still ahead with Q4 and further efficiency gains are expected to come.
All in all, the Q3 figures are seen to fully support the equity story in accordance with QBY's Strategy 2025, where management is targeting an EBITDA margin of 7-8% (eNuW: 7.1%) as well as sustained positive net income.
Valuation remains undemanding with shares trading at only 6.6x EV/EBITDA '24e (3.5x '25e). We hence reiterate BUY with an unchanged € 1.10 PT based on DCF.
ISIN: DE0005137004
