Wise - 2014 års ”turnaround”?

2014-03-20 17:28, Edited at: 2014-03-20 18:02

Vänding i sektorn, alla engångskostanderna tagna och stigande marginaler till 7-8%. Hur jag än räknar i mittt excelark får jag fram en väldigt begränsad nedsida, men en destå större uppsida. Aktien handlas idag till en 7% tillväxt med 5% marginal på PE 10. Glöm inte att de har expanderat och bara marginalen under Q4 var 8%. Historiskt är 7-8% mer rimligt. Utan något drastikst på markanden/ny makrorisk, ser jag en uppsida på 46%. Räknar man lite mer aggreseivare för 2014 har vi en kursdubblare

Wise – Köp Rekomendation

Med riktkurs 1.84 SEK (46% uppsida)

-Recruitment/consultancy/HR company operating mainly in Sweden (recently also expanded to Denmark.)

-The sectors tends to be very sensitive to economic cycles.

-After speaking to a few guys with good insight in the sector I believe the recruitment will pick up as the economy improves and grows.

• Wise Group reported 16 MSEK in EBITDA for 2013 with a historically low margin of 3.6%.
• 2013 was burdened by huge non-recurring costs (9.1 MSEK) and investing in growth (Denmark).
• Few reconstructions made in the company and now mainly focusing on profitability and growth.
• Historically, Wise has managed to perform margins of 7-8%, 2013 was a very tough market but it took a turn and showed improvements in the late 2014.

What the market have missed:

• Higher margins in 2014, all restructuring and expanding costs taken in 2013.
• 2013 was the year of profitability and growth investments. The investments have already showed improvements and the margin has increased to 8% in Q4 (2.5% for Q1-Q3)
• Historically Wise has been around 7-8% margins, and I expect Wise come back to those historical levels. Therefore I base my price target on a 7% margin for 2014.

• During 2013 Wise expanded its business to Denmark, all costs due to this expansion has been taken and effected the 2013 results. On top of the organic growth, the new unit in Denmark will boosts Wise Groups growth in the coming years.

• The company has recently paid off debts which has resulted in being low on cash. I believe the company is certain about its near term cash flows due to the fact that Wise decided to pay of unnecessary debt. This indicates that the recruitment sector continues to do well.

• A concern for the firm might eventually be the huge goodwill of 73.5 MSEK, equalling the firm’s equity. Might be a risk if the company needs to write down huge. However, I see this risk as very small. But still exists.
• Another risk is the fact that Wise is expanding in Denmark, few other recruitment/consultancy companies have seen difficulties to enter markets outside Sweden. This might lead to additional unexpected costs and/or lowering the margins.
• One of the best Swedish investors, Mittregger (brother of the portfolio manager of the hedge fund Gladiator) positioned with a 12.4% ownership of the company, recently bought an additional 250 000 stocks
• Other insiders have recently bought Wise Group stocks

Price target

Revenues 2013: 468.7 MSEK

EBITDA 2013: 16.9 MSEK

Margin 2013: 3.6%

Net debt: 0.07 SEK (relatively ok financial position)

Stock price today: 1.26 SEK

Given an 9% growth for 2014 (revenues of 510 MSEK) and operating on a historically normal margin of 7% the stock should be traded at 1.84 SEK today ( adjusted for any net debt and future cash flows) calculated on a PE 10. This gives us a upside of 46% from today’s 1.26 SEK. It could be argued that Wise should be traded at a PE of 12 as its competitors, however, due to the liquidity/ (hard to get in/out of your position) I believe the PE should be discounted.

I had a chat with the CEO of a well-known recruitment company in Sweden who mentioned that the recruitment market picked up in the end of 2014 and is expected to do very well for the next 2-3 years. There are seasonal effects in the sector, having most of the recruitments taking place around/before Christmas (Q4) and before summer (Q2), hence Q2 and Q4 are the seasonally strongest quarters for the industry.

Wise Group pays a dividend of 0.03 SEK per share (2.4% yield)