HeadHunter - Positive 2021 Trends Persisting, Upgrading to BUY

We have updated our model for HeadHunter to incorporate the most recent results, as well as the positive trends that still seem to be in place. We expect another robust set of quarterly results on November 15, with top-line growth slightly higher than 90% y-o-y and a healthy 56.5% EBITDA margin in 3Q21. The latter would not be far from the 2Q21 level despite higher marketing spending. We have also updated our valuation of HeadHunter, switching to a two-stage DCF model that produces a $64.93 per share 12-month target price and warrants an upgrade to BUY.> Positive 2021 trends persisting. The situation in the labor market has clearly been supportive for HeadHunter. As the market leader in CVs and vacancies, HeadHunter has benefited from increased competition for workers among employers. Given the current deficit of labor, we believe recruitment budgets are likely consolidating further on the most efficient platforms with the widest reach, and we expect this trend to remain in place. We project slightly above 90% y-o-y revenue growth in 3Q21.> Improved monetization to drive margin expansion over long term. Not only has the labor market deficit led to higher shares of recruitment budgets going to the most efficient tools; we believe it has also made employees more focused on the efficiency of job search tools rather than prices. This is something we think should be supportive as HeadHunter takes steps toward further monetization. Taking that into account, we now project a 60% sustainable EBIT margin in the terminal period.> We expect solid 3Q21 results. We expect a strong set of results, with 90.7% y-o-y top-line growth and a 56.5% EBITDA margin. The latter would not be far from the 2Q21 level despite increased marketing spending, and it would be well above the conservative guidance of 50% for the full year the company provided in its presentation on the 2Q21 results.> Upgrading to BUY. We have switched to a two-stage DCF model, with the forecast period now lasting until 2025 and the transitional period until 2035. Assuming a 12% WACC, a 49% terminal FCF margin and 4% terminal growth, we end up with a $64.93 per share 12-month target price and upgrade HeadHunter to BUY.> Risks. Possibly worse macro conditions and decreased competition for workers, along with potential share overhang (Elbrus and Goldman Sachs have lockups expiring on November 29), are the main risks, in our opinion.