Yesterday, q.beyond released a strong set of Q1 figures, which exceeded ours and streets profitability estimates as efficiency measures bore fruit despite rather muted top-line growth. In detail:

Q1 sales increased slightly by 1.1% yoy to € 47.1m (eNuW: €47.5m, eCons: € 47.6m), of which 74% were recurring revenues. The muted growth momentum was predominantly due to the Consulting segment, which declined by 8% yoy to € 14.2m, which was mainly due to the reduction in low-margin project sales. This also allowed for an improved segment gross margin (+6.3pp to 8.4%). In the mid-term, management aims to continuously improve the Consulting margin driven among others by an increasing off- and near-shoring ratio (target: 20% vs 12% after Q1), an improved utilizitation rate as well as higher daily rates. In contrast, the Managed Services segment grew by 5.7% yoy to € 32.9m at an improved margin of 21.5%. Hence, q.beyond was able to improve its gross profit by 38.5% to € 8.2m (eNuW: € 7.8m, eCons: € 7.9m), implying a margin of 17.5% (+4.7pp yoy).

On this basis, Q1 EBITDA also significantly improved to € 2.0m at an implied margin of 4.2% (eNuW: € 1.4m, eCons: € 1.4m), which compares to negative € 1.3m in the previous year's quarter. Next to the improved gross margin, EBITDA was driven by significantly reduced sales & marketing (-1.5pp yoy sales ratio) and G&A expenses (-0.3pp) as well as the effects of “One q.beyond” strategy (i.e. eliminating duplicate structures). FCF came in at € 1.4m (company definition: € 0.6m), leading to a continuously comfortable net cash position of < € 30m.

Against this backdrop, management confirmed the FY guidance of € 192-198m sales, € 8-10m EBITDA and positive FCF. While FCF (eNuW: € 6.2m) and sales (eNuW: € 194m) should be clearly achievable, the company now looks on track to even achieve the upper end of the EBITDA guidance (eNuW: € 9.7m), as efficiency gains should further materialize throughout the year.

Overall, the release underpins that the company is on track for a successful transformation in accordance with the Strategy 2025, which includes among others an EBITDA margin target of 7-8% (eNuW: 7.1%) as well as sustained positive net income.

Meanwhile, valuation continues to look undemanding, as share are trading at only 5.9x EV/EBITDA '24e (3.3x '25e). Hence, the stock remains a BUY with an increased PT of € 1.10 based on DCF.