HeadHunter - Making the Most of Its Momentum

We reiterate our BUY rating on HeadHunter (HH) and adjust our target price to $26.47 per share, a 3.6% upgrade in ruble terms driven by an earnings revision after a 2Q20 results call that revealed positive ongoing trends. The next catalysts are the local listing (in late September or early October) and the 3Q20 results (late November). HH remains a trade idea of ours.> 2Q20 results at upper end of preliminarily reported ranges. They beat the Interfax consensus by 0.8% on revenues and 6.5% on EBITDA. Top-line growth expectedly fell to -19.3% y-o-y in 2Q20 (on R1.5 bln in revenues), with key accounts in Russia down 6.1% y-o-y (ARPC down 5.7% y-o-y; the number of clients flat y-o-y), but more resilient than SMEs, which were down 28.8% (ARPC down 7.8%; the number of clients down 22.1% y-o-y). Revenues from other value-added services increased by 8.7%, driven by an increase in pay-per-lead contracts for recruiting couriers. Revenues from bundled subscriptions decreased 5.3% y-o-y, while those from job postings plunged 34.3% y-o-y. The EBITDA margin came in at 44.7% down 7.3 pp y-o-y on weaker operating leverage. Marketing expenses increased 5.7% y-o-y, as HH ramped up its marketing in the end of the quarter to reach out to new audiences given the increase in job seeking following the lifting of lockdown measures. > Current trading trends encouraging. According to the CEO, KPIs have shown a strong recovery, while CVs and job postings on the platform have reached all-time highs. HH said that by the end of 2Q20 it had reached pre-pandemic levels in the vast majority of business segments and that in July-August revenues were growing at a mid-single-digit percent pace. Revenue growth is expected to accelerate to the double-digit percent by the year-end. > Shift to pay-per-contact model. It is good news that in August HH shifted to a pay-per-contact model from unlimited CV database consumption, which we consider an important monetization initiative that could drive ARPC higher. HH estimates up to 5% incremental revenue growth per annum by 2022 and 10% or more thereafter from this initiative.> Valuation. We reiterate our BUY recommendation, raising our target price to R1,986 per ADR, which at the current USD/RUB rate of 75 implies $26.47 per ADR. This represents a 3.6% upgrade to our target price in ruble terms driven by an earnings revision after the 2Q20 results call that revealed positive trends. HH is trading at a 14.3 2021E EV/EBITDA and 20 P/E, providing discounts of 62% and 69% to global classifieds peers. > Local listing could improve ADR liquidity and is next catalyst. HH expects to list on the Moscow Exchange in late September or early October. As we have discussed before, a local listing is a positive step that should lead to an increase in the stock's liquidity over time.