Topic: QBY released Q3 results that were largely in line with our estimates on the top- and bottom-line. Especially profitability remains on a strongly improved level compared to the previous year. In detail:

Q3 sales increased 3.5% yoy to € 47.0m (eNuW: € 47.3m; eCons: € 47.4m), again driven by the managed service segment but also a sequential improvement of the consulting segment. Managed service sales increased 6.2% yoy to € 32.9m (eNuW: € 32.8m) and achieved an improved segment gross margin of 79.9% (+1pp yoy). On the other hand, the consulting segment saw a further decline, as sales were down 2.6% yoy to € 14.1m (eNuW: € 14.5m). Yet, we saw a sequential improvement of 4.2% qoq, which is pointing towards a recovery, in our view, as the segment gross margin also improved slightly by 0.4pp qoq to 7.1%. Mind you, 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%; 13% at Q3 ‘24). Overall gross profit came in at € 7.6m (eNuW: € 7.8m; eCons: € 8.4m, implying a margin of 16.2% (+0.9pp yoy).

Against this backdrop, Q3 EBITDA improved significantly to € 2.2m (vs. € -0.1m in Q3 '23; eNuW: € 2.2m; eCons: € 2.3m), implying a 4.6% margin. The drivers behind the improvement were significant reductions in sales & marketing (-14% yoy) as well as G&A expenses (-12% yoy) following the successful implementation of the One q.beyond strategy.  

On this basis, management confirmed the FY guidance of € 192-198m (eNuW: € 193m; eCons: € 193m), EBITDA of € 8-10m (eNuW: € 9.3m; eCons: € 9.2m) as well as positive FCF (eNuW: € 5.6m; eCons: € 4.4m). In our view, the guidance looks absolutely achievable, especially given the seasonally strong Q4 ahead. At 9M, FCF arrived at € 4.7m, which compares to € 2.6m in the same period last year.

Overall, the release fully underpins the case in accordance with management’s Strategy 2025, targeting an EBTIDA margin of 7-8% (eNuW: 7.1%; eCons: 6.8%) as well as sustained positive net income (eNuW: € 2.1m; eCons: € 1.4m).

Reiterate BUY with an unchanged € 1.10 PT based on DCF.