Webstep is a ~NOK625m mcap company listed on the Oslo stock exchange. The company provides a broad range of IT services delivered through senior consultants across Norway. After years of sub-par operating margins, tides seem to have turned, and with the share currently trading around 10-11x 1y fwd EPS, risk-reward looks interesting. Protecting the downside; a one-off dividend combined with an ordinary dividend that offer investors 10% yield around current levels.
This is not a complex write-up with a lot of intricate business lines and moving pieces, and I’ve promised myself to not highlight “secular digitization trends” as part of why I’m optimistic. My thesis is relatively simple: operating profit per employee has been declining steadily over the last 3 years, but we’ve now bottomed. Loss making operations in Sweden have been sold (to B3 Consulting) and the focus is now solely on Norway.
About the company and briefly on why the share price is depressed
Webstep was established in 2000 and has since its beginning 25 years ago developed into an organisation of 450 experienced consultants located in and around the largest cities in Norway, i.e. Oslo, Bergen, Trondheim and Stavanger.
The company serves a broad range of public and private customers, with the latter being tilted towards clients in the O&G and energy sector. The 10 largest customers account for approximately 55% of Webstep’s revenue, while 65% of the company’s revenue comes from private customers. Below is a breakdown of its customer mix as of 3Q24.
The company historically focused on offering senior IT consultants with a high degree of specialization offered mostly to customers on an individual/1:1 basis. The benefit for consultants on the other end was a high take-rate of billed hours (salary) compared to other employers, and as such, Webstep became a sought after place to work for experienced consultants who focused (marginally more than others at least) on the size of their paychecks. Employees were often located on-site with customers, and while that often led to long-term relationship, the company seemingly struggled with building a sense of belonging and common culture. That in turn resulted in what I perceive as higher employee churn and lower average utilization vs. peers (especially Bouvet - the market leader in Norway).
The end-result can be seen through the company’s deteriorating margins per FTE (below). Leading up to 2022, EBIT contribution per employee had hovered around NOK125-140k/employee per year. In the period that followed however, the trend worsened significantly. In 2022, EBIT per employee averaged NOK107k and in 2023 it ended up at NOK37k/employee. Adding fuel to the fire, the Nordic IT market turned sour in 2023, which obviously didn’t help. What’s interesting to note is that operating revenue per employee didn’t decline at all throughout the same period - it has actually increased relatively steadily going from cNOK1650k/employee in 2019 up to NOK1780/employee 1780 in 2023, leading me to believe that there has been significant cost pressure (i.e. salary creep) in the later years. Now critics might argue that the same trend can be seen amongst its closest Nordic peers, and that Webstep has fared quite well considering that, which is fair. EBIT variation seems to be a great deal higher than peers though, which is not positive and likely related to WSTEP’s smaller size vs. competitors.
All in all, disappointing margins, a rough end-market and a high turnover in the C-suite (more on that later) has led to the share trading at a substantial discount to peers and being 30% off its highs in 2021.
Going forward
Since early 2024 there has been a clear (and vocal) shift in Webstep’s strategic priorities, seemingly initiated by Kjetil Bakke Eriksen when he took the role of interim CEO in Nov 2023. I believe these are aligned with the priorities of the current CEO and that we’ll be able to see the result of them in 2025 (perhaps earlier). Going forward, (my interpretation) of the Company’s focus is as follows:
Reduced overhead costs and a build-down of hierarchy (less top heavy structure)
Improved brand recognition in the market
Increased focus on larger enterprise clients with “digital challenges” through longer contracts
Gradual shift to more product/project based services (away from only focusing on selling billable hours from individual FTE)
Better business development and sales coordination between locations (tp increased utilization)
Increased focused on building a common company culture
A substantial cost reduction program was launched in early 2024 and has been implemented throughout the year, and there’s an explicit focus Webstep’s EBIT target of above 10%.
Management (and related risks)
Webstep is now headed by (Anne) Kristine Lund, who joined the company in May 2024. Before joining Webstep, Kristine served as the CEO in Boitano - another IT consultancy setup where she had been since 2018. That company has seemingly managed to deliver 10%+ operating margins for some years now, even though its difficult to know for sure as it’s a private company. Kristine also has some capital markets experience from her 4 years as an analyst in Norges Bank Investment Management (NBIM - Norway’s sovereign wealth fund) where she focused on private markets. I have a fairly good impression of her judging by the conference calls I’ve listened in to, although I admit that that my impression of that shouldn’t account for much. Kristine studied industrial economics in NTNU (engineering MSc with a business/finance minor).
Kristine will be joined by Henning Hesjedal as CFO in April this year (2025). Henning is joining Webstep from Avanade Norway where he currently acts as country manager. His previous roles include various CFO and controller positions, as well as shorter stints as a consultant. The current interim CFO, Nina Stemshaug, will be replaced by Henning when he joins. Nina is currently working on contract with the company, but if her name rings a bell it’s probably because of her previous experience from 9 years as a CFO in Zalaris ASA,
Then, over to the not-so-comforting stuff related to top management. Unfortunately, there’s been (too) high turnover in the C-suite during the last 5 years or so. Kjetil Bakke Eriksen was in charge (and had been for a while) when Webstep went public in 2017. Following his transition out of the CEO chair early 2019 however, 4 different CEOs have been appointed - and later fired - by the board. Kristine Lund is the 5th CEO in 5 years, which alone is probably enough to justify a decent discount to its peers. Below is the list of CEO’s in the company since 2006.
Kjetil Bakke Eriksen: Jun 2006 - Jan 2019
Arne Norheim: Jan 2019 - Nov. 2020
Liv Annike Kverneland: Interim CEO Nov 2020 - Feb 2021
Save Asmervik: Feb 2021 - Nov 2023
Kjetil Bakke Eriksen: Interim CEO Nov 2023 - May 2024
Kristine Lund: May 2024 to date
The period from 2019 to date has undoubtedly been challenging for the industry, but it is concerning to see such a high degree of turnover at the top of the company. Obviously a red flag, so it’s important to watch that going forward.
Board and owners
The board is currently chaired by Kjell Magne Leirgulen. Kjell Magne is the CEO of a family owned investment company called Embron Group where he’s been since 2022. Embron Group and related parties own ~30% of the company.
Representing another large shareholder is David Bjerkeli, who serves on behalf of Hvaler invest who holds approximately 8% of the shares outstanding. The BoD should as such have shareholder interests top of mind, which is comforting.
Related to other owners on the cap table, I’d say that it’s of high quality from a stock picker perspective. Both Protector Forsikring, Holmen Spesialfond and Salt Value can be found on the cap table - all renowned SMID cap tilted investors based out of Norway.
All-in-all a fairly shareholder friendly captable. Below is the top 10 list as of Jan. 2025.
Briefly on KPIs per employee
Below you’ll see how Webstep stacks up against a selection of Nordic peers. In line with expectations, revenue per employee is high (remember Webstep’s focus on senior professionals), while EBIT per employee has been amongst the worst in the group and importantly too sluggish.
My thesis is that Webstep in the quarters to come will reduce overhead costs and that we’ll see the effect of optimized utilization across the organisation. A take that is fairly in line with what the company communicated in 3Q24 and what we saw signs of that quarter.
In 2024 I believe we’ll end up somewhere around NOK163k/employee, much helped by the divestment of Websteps’ Sweden operation of ~80 consultants which has contributed negatively to EBIT basis on a rolling 12m basis.
Financials, estimates and valuation
Below are my current estimates and implicit multiples at NOK22.5/sh. Nothing special really, but I basically think a ~12x NTM PE multiple on increasing margins with a 10% DY is too cheap. I pencil in ~5% growth in FTEs in 2025 (mind you the 2024 revenue # includes Sweden), followed by ~8.2% growth in 2026E.
I assume that EBIT/FTE grows from 164k in 2024E, through 189k in 2025E before trending towards apr. 200k in 2026. That translates into an EBIT below the company’s 10% target and an EPS at apr. 2.3 NOK.
Assuming that the market has normalized and the market gains comfort in the company being able reach their 10% target, I believe a 12-13x PE multiple is far from aggressive (it’s 15% below its Nordic peers). That brings us to apr. 28-30/sh while you get ~NOK2/sh in dividends. If we have to wait 1.5 years before we get there, the implicit return is apr. 23%.
I would argue that a 10% EBIT margin is within reach. What makes me pause however is that my 2026E assumes that Webstep’s EBIT/FTE trends towards the “best in class” peer Bouvet, which seems like a stretch (see below). However, at least for now, I land on that being doable and within reach.
Risks
Top management still unproven and the frequent changes in the C-suite is a clear red flag. Will be important to watch execution and employee turnover going forward.
Building culture takes time - we’re not near where we want to be just yet.
The end market for IT consultants is still tough and highly competitive - especially in the largest cities. Even though utilization improves, this is likely to put continued pressure on rates —> the rebound in margins is delayed.
The liquidity in the share is incredibly low. As is the market cap. Perhaps too small for many. Fair to argue that those factors warrant a discount.
+ many more I’m sure…
As always, let me know if you have any comments or insights worth sharing.