HeadHunter - Market Share Gains to HOLD

We downgrade HeadHunter (HH) to HOLD given the recent stock performance: since we last revised our target price on August 28, the shares have gained 78% in dollar terms, outperforming the RTS Index by 62 pp. Our new target price is R2,840 ($38.38 at the current FX rate), a 43% upgrade in ruble terms, mainly driven by model revisions following the 4Q20 results, which revealed encouraging trends.> Encouraging top-line trends. The CEO said that revenue growth fully recovered to pre-Covid levels by end-4Q20, while job postings and CVs have reached records, widening HH's lead over competitors. The company has also been seeing m-o-m growth improving across all segments YTD, despite delaying planned price hikes from January to April. We project 42% revenue growth this year, at the top of the guided range, supported by the acquisition of Zarplata.ru (a regional job classifieds platform focused on the blue-collar segment), a delayed price increase in April of at least 10%, the accelerated shift online prompted by the pandemic (especially for SMEs) and the positive impact from the introduction of a pay-per-contact model last year. The latter should have an enduring impact on ARPC growth, the vast majority of key accounts having already moved to the new scheme (with 100% expected this year).> Gaining traction among blue-collar workers. HH saw CV growth in blue-collar categories expand 45% last year. This is the most untapped segment (for comparison, the total CV database rose 14.6%). Blue-collar vacancies accounted for 43% of total vacancies in 2020. We believe HH's position in the segment will be supported by the ongoing integration of Zarplata.ru, which last year delivered R780 mln in revenues, right at the top of the guided range, reflecting a good track record.> Valuation. HH is trading at a 2021E EV/EBITDA of 23 and P/E of 34, providing discounts of 22% and 50% to the DM classifieds peer median. We expect adjusted EBITDA to expand at a CAGR of 37% over 2020-23E, with adjusted net income and FCF growing at 39% CAGRs.> Risks and catalysts. A share overhang risk remains, as 51% of the equity remains registered for placement by the key shareholders. Although a placement could create short-term pressure on the share price, we think it would ultimately benefit minorities by increasing the stock's liquidity over the long term. Catalysts to watch include the dividend announcement (we expect an 85% payout, but for a dividend yield of below 2% on our estimates); the acquisition of 40% of Skillaz to bring HH's stake to 65% that would allow it to consolidate the company, cross-sell products and extract other synergies; the integration of Zarplata.ru and the associated upside in terms of revenues and cost optimization.