HeadHunter - On Track to Boost Share Liquidity

HeadHunter (HH) announced overnight that its key shareholder is placing 11.5% of the company's equity. Despite creating some short-term pressure on the share price, we think this will ultimately benefit minority shareholders by increasing the stock's liquidity over the long term. We also expect that obtaining a local listing (expected in early 4Q20) will help boost liquidity. The preliminary 2Q20 results came in weak, as had been expected, but were better than feared.> A key shareholder is placing 11.5% of equity. Following the publication of form F-3 (the so-called "shelf registration") for placement of 62.5% of equity, which came into effect last Friday, HeadHunter filed a prospectus overnight that a shareholder who is a Goldman Sachs affiliate is placing up to 11.5% of equity (5.75 mln shares including a greenshoe option). The post-placement lockup period will be 90 days and the equity stake of the shareholder will drop to 13.5%, assuming the over-allotment option is fully exercised. The Elbrus Capital affiliate, meanwhile, is maintaining its 37.5% stake. We have highlighted HeadHunter's share overhang risk in our post-IPO reports on the company. Although any 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. > Preliminary 2Q20 results are better than expected. In the published prospectus, HH also disclosed preliminary 2Q20 financial results and operational metrics (see the next page for details). In the operational metrics, the dynamics of web traffic (from -5% to +4%), new CV inflows (from 7% to 17%) and daily job postings (from -15% to 0%) accelerated between the weeks of May 18-22 and June 22-26 on a y-o-y basis. The preliminary 2Q20 financial results (although we note that it is strange to see the word "preliminary" attached to the results two weeks after the end of a quarter) do show a decline in revenues(-19% to -22%) and adjusted EBITDA (-27% to -48%), but these figures were still better than our expectations (-44% for revenues). A key thing to watch for is how quick the recovery in 3Q20 turns out to be.> Plans for local listing might boost liquidity. Earlier this week, HH announced that its BoD has approved obtaining a local listing of the company's ADSs. The company expects to start listing on the Moscow Exchange in early 4Q20. Quotation and settlement will be in rubles. We believe a local listing is a broadly positive step that should increase the stock's liquidity over time. As our strategy team wrote in a note yesterday "Benefits of Local Listing," liquidity tends to double or triple within a month after companies announce a decision to list locally (see next page for charts)> Valuation. We reiterate our BUY rating and $27.00 target price per ADR. HH is trading at a 14.5 2021E EV/EBITDA and 20.6 P/E, providing discounts of 43% and 54% to global classifieds peers. We expect its adjusted EBITDA to grow at a CAGR of 25.9% over 2019-23E, with adjusted net income expanding at a 32.0% CAGR and FCF at a CAGR of 36.1%.