BTS Group AB

Moat: 3/5

Understandability: 2/5

Balance Sheet Health: 4/5

{: .note }BTS Group AB is a global consulting firm that works with clients in transforming their businesses through custom solutions focused on strategy execution.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview:

BTS Group AB (BTSGY) operates as a global consulting firm specializing in customized solutions for strategic alignment and execution. Unlike traditional consulting firms that primarily offer advice, BTS emphasizes a hands-on, experiential approach where they work directly with clients to drive performance improvements and implement their strategies.

  • Revenue Distribution: BTS’s revenue is primarily derived from three categories:
    • Strategic Alignment: This involves developing and aligning business strategies, often through immersive simulations.
    • Business Acumen: Programs designed to enhance the financial and business understanding of client teams, enabling them to better execute strategies.
    • Leadership Development: Initiatives aimed at enhancing client’s leadership skills through experiential learning and behavioral changes.
  • Trends in the Industry: The consulting industry is generally competitive, requiring firms to maintain strong client relationships and offer cutting-edge solutions. Key trends affecting BTS include the rising importance of employee upskilling and reskilling, the greater need for remote-compatible solutions, and the demand for data-driven insights. These are further driven by the rising pace of change and digitalization of almost every industry.
  • Margins: As a consulting firm with high reliance on human capital, BTS typically faces moderately good gross margins, which are offset with operating costs of employees.
  • Competitive Landscape: BTS operates in a competitive market with various types of competitors. These include:
    • Large Consulting Firms: Such as McKinsey, Boston Consulting Group, and Bain, which are well-established, brand-heavy firms. They often focus on providing big-picture strategic advice rather than bespoke operational improvements.
    • Smaller Consulting and Training Firms: That may specialize in specific areas, but lack the global presence or integrated capabilities of BTS.
    • Internal Training and Development Groups: That attempt to develop their workforce internally, but may lack specialized external expertise.
  • What Makes BTS Different?
    • Experiential Learning: The company’s emphasis on simulation and experiential learning is what is different from other consultants.
    • Execution Focus: Unlike traditional consultants, BTS focus on implementation and execution instead of just giving advice.
    • Client Partnership: They work closely with their clients to bring real, measurable results, often embedding a team inside the customer’s organization.

Financials in-depth:

BTS’s financial health demonstrates consistent profitability, but it’s also important to see underlying metrics to understand the business’ financial status.

  • Revenue Growth:
    • BTS’s revenues have fluctuated, but overall it has demonstrated relatively stable growth with organic growth in the past few quarters. The growth has accelerated with rising demand for their services in 2023.
    • There has been some impact of the slowing global economy in the revenue, especially in 2023.
  • Profitability:
    • Gross profit is very healthy for the business as a percentage of the revenues. This is typical for a business that requires little external input and relies heavily on human talent.
    • However, operating margins can fluctuate, depending on how efficiently operating expenses are managed by the company, particularly the salaries that are given to the employees.
    • The company’s net profit is quite volatile, mostly due to the seasonality and fluctuations in their investments and operations. They are also exposed to adverse changes in exchange rates.
  • Free Cash Flow:
    • Their operating cash flow is healthy and has been increasing year after year as the company continues to expand.
    • Their capital expenditure is small and mostly related to software and technology investments.
    • The company has been generating free cash flow consistently for years. This means they have a large amount of financial stability.

    Recent Performance and Concerns:

    • In the Q1 2024 earnings call, management expressed optimism in the outlook, despite geopolitical instability and economic slowdown in certain regions.
    • The company has strong growth and has managed to increase its revenue from 1301 M SEK in Q1 2023 to 1580 M SEK in Q1 2024.
    • The company was also able to increase its operating profit from 156 M SEK in Q1 2023 to 204 M SEK in Q1 2024.
    • The company is seeing a lot of demand for its transformational offerings and are seeing solid signs from its strategic programs, as companies have continued to make significant investments in these areas.
    • While their European business has declined, they are seeing a lot of expansion in North American and Asian businesses, more than offsetting the loss from Europe.

Moat Analysis:

Although BTS provides quality services, its moats are not very high.

  • Network Effects: While BTS builds relationships with their clients, it does not have a scalable business model that would increase its value with more usage and more customers. Also, the clients have little to no incentive to refer their peers to BTS. Thus there are no direct or indirect network effects at play.
  • Switching Costs: The company benefits from some switching costs. A business that uses the services of BTS and deeply integrates it in their operations, would have a problem trying to adopt a competitor’s services. The value the client gains by changing from BTS to a competitor is not more than the cost of doing so.

  • Intangible Assets: The company has a good brand name, is seen as the expert in strategy execution. Also, they have built deep relationships with large companies, which in some degree, are hard to replicate. They also have some proprietary systems and models that they use. These all make for some sort of advantage for the company.

  • Cost Advantages: The company does not have significant cost advantages over the competitors. As it grows, it might see a slight increase in efficiency in its operations. However, these costs are likely to be similar to those of the competitors.

Moat Rating: 3 / 5

  • BTS possesses a narrow moat owing to its client relationships, specialized training programs and some switching costs. However, these are not incredibly robust and are not enough to give it a huge competitive advantage over its competition. The company is still at risk of seeing their expertise replicated and imitated by newer consultants.

Legitimate Moat Risks and Business Resilience:

It is essential to recognize both external and internal risks that could potentially impact BTS.

  • Industry Cyclicality: Consulting spending is often tied to economic cycles; a downturn could significantly reduce demand for BTS’s services.
  • Competition: The consulting industry has low barriers to entry. This puts BTS in a situation where competition is likely to grow and there is a potential for its value proposition to be eroded by new players.
  • Talent Acquisition and Retention: As the company is built on its human capital, attracting and retaining high-quality consultants is key to their growth and can be at risk.
  • Execution Risk: The company relies on the fact that their consultants are capable and effective at their job. Any failures in execution can result in dissatisfied clients and a decline in the firm’s reputation.
  • Technology Disruption: There is a possibility of emerging technologies that could potentially render current training methods and techniques less valuable.
  • Pricing Pressure: Consulting projects are usually priced by looking at the past value given to clients and competitors and pricing relative to them. There is a risk of competitors with very deep pockets or competitors from developing countries putting significant pressure on the company’s revenue and margins.

Resilience:

  • Diversified Client Base: BTS serves a global portfolio of clients, spanning a number of industries.
  • Reputation and Brand: They have developed strong relationships with their customers.
    • Adaptability: BTS’s focus on business transformation and operational improvement means it is likely to be able to navigate changes in the future.

Understandability: 2/5

  • The consulting industry has a complex and opaque nature. Despite the fact that the services the company offers is easy to understand, determining the quality of the services is almost entirely subjective. Also, because their customers can vary so wildly in what exactly they want, it may be hard to compare results across different projects. Moreover, it might also be hard to understand the company’s future prospects because of lack of predictability. Therefore, a rating of 2 is justified.

Balance Sheet Health: 4/5

  • BTS’s balance sheet is generally strong. They are profitable and they have consistently produced free cash flows and have enough money to cover their liabilities.
  • They do have some debt and operating leases, but they are manageable.
  • The company is very unlikely to go bankrupt, therefore it gets a high rating.