HeadHunter - Set to Gain Market Share in Crisis

HeadHunter (HH) reported 1Q20 results that were strong, supported by the price hike this year. It saw a sharp drop in revenues in late March followed by a recovery starting in mid-April. Nevertheless, in April-May revenues were down 25% y-o-y. We continue to see a structural opportunity for HH to strengthen its position in the crisis. Given our stronger ruble and lower risk-free rate assumptions, we upgrade HH to BUY and increase our target price to $27.00 per ADR. > 1Q20 results supported by price hike and FX gain. In 1Q20, revenues increased 18.6% y-o-y to R2 bln. The revenue growth was supported by the price hike at the start of the year. The EBITDA margin grew 6.4 pp y-o-y to 52.5% thanks to an FX gain (a 5.1 pp effect) and budget optimization. > Pandemic hits revenues hard in late March. According to the company, before the third week of March YTD revenue growth was in line with the original guidance of 21-25% y-o-y. However, revenues dropped sharply thereafter (the company did not say how sharply), trimming the 1Q20 growth rate to 18.6% y-o-y. The sharp drop continued until mid-April, when the recovery began. Nevertheless, in April-May revenues declined 25% y-o-y. The company noted that the biggest revenue decline was in job postings, while long-term access products and bundle subscriptions showed much greater resilience. HH said that revenues from SMEs had been the hardest hit, but that in May the segment was recovering faster than key accounts. The number of candidates and employers using the site dropped in mid-March, bottomed out in mid-April and has since been recovering at a double-digit m-o-m pace (see the next page for details).> Ready to spend in short term to capture longer-term opportunity. HH sees 2H20 as a unique window of opportunity to strengthen its position and capitalize from the ongoing structural disruption of blue-collar recruitment, particularly the shift online, triggered by the halt to offline business activity during the lockdown. HH sees acquiring new clients as a key priority, even if it means temporarily weaker financial results, and thinks that the marketing budget might increase as a share of revenues this year (we expect it to be flat and cut our 2020 EBITDA margin forecast 3.7 pp to 45.3%). > Dividend date not yet announced given that revenue growth still in red. The company plans to provide an update at next quarterly call or earlier.> Valuation. We upgrade HH to BUY, raising our target price to $27.00 per ADR, mainly due to our stronger ruble and lower risk-free rate (5.5%) assumptions. HH is trading at a 14.3 2021E EV/EBITDA and 20.2 P/E, providing discounts of 39% and 46% 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%.