HeadHunter - In Good Shape for 2020

We reiterate our BUY rating on HeadHunter (HH) but reduce our target price by 21% to $19.66, which is primarily driven by macro-related factors. HH is trading at a 11.6 2020E EV/EBITDA and 16.8 PE (adjusted EBITDA CAGR 28% over 2019-22 and adjusted net income of 37%). The company strengthened its market dominance in 2019 (55% brand awareness) and is well set for 2020. In our view, its earnings are quite resilient to economic slowdowns, because in tough times recruiting budgets tend to consolidate around the market leader. We also expect offline blue-collar recruitment to be disrupted by online and see HH as one of the key beneficiaries of this.> Position strengthened in 2019. HH increased its brand awareness in 2019 to 55% according to Socis MR Russia, while the gap with the number two player (Avito) expanded to 2.9-fold, from 1.7 a year before. In white-collar online recruitment, HH is the undisputed leader with 65% awareness and a 4.5-fold gap. In blue-collar recruitment, HH grew to the leader position (42%), while the gap with the previous leader (Avito) is 1.6-fold. > Well prepared for 2020. The company's earnings are quite resilient to economic slowdowns for two reasons. First, in tough times recruiting budgets tend to consolidate around the market leader, which is able to provide the best efficiency and lower cost per unique contact rather than budgets being split among several players as often happens in better times. Second, we expect a disruption of offline blue-collar recruitment (still around 50% of total) by online and see HH as one of the key beneficiaries of this trend, thanks to its market dominance and increased focus on this line of business. The employee turnover rate in Russia is quite high: 37.2% for blue-collar and 14.9% for white-collar staff, according to J'son & Partners. That means that companies will keep hiring even in a downturn. The internet (and HH) provides a cheaper alternative for this hiring than offline channels.> Valuation. We reiterate our BUY on HH and our reduce target price by 21% to $19.66, which is pretty much driven by new FX (USD/RUB 75) and WACC (14.7%) inputs. HH is trading at a 11.6 2020E EV/EBITDA and 16.8 P/E, representing a discount of 39% and 53% to global classifieds peers. We expect its adjusted EBITDA to grow at a CAGR of 28% over 2019-22, with adjusted net income expanding at a 37% CAGR and FCF at a CAGR of 44%. > Things to watch. Although competition is distant, it is on the rise, so we suggest keeping an eye on it, especially Avito, which is the largest and strongest competitor. We think that HH will be on the lookout for value-accretive M&A opportunities that would strengthen its position along the recruitment value chain. These could involve expanding into certain segments of the job market (for example, freelance), regions or areas (such as e-learning). What is shaping up to be a downturn year this year is also HH's first as a public company. We will keep watching the progress closely but we think it is set to cope well.