Dovre - Margin potential leaves upside

Dovre posted Q3 results above our estimates; in our view earnings growth should continue next year, while valuation still leaves enough upside potential.

Especially high growth in Norway during Q3

Q3 revenue grew to EUR 59.7m, above our EUR 54.1m estimate. The 28.5% growth was driven by all three segments. High demand in Norway continued to support both Project Personnel and Consulting, and in our view the latter’s 33% growth was encouraging as it was driven by several larger projects within the Norwegian public sector as well as energy. Consulting continues to grow in Finland, but Suvic’s wind farm projects remain the more significant Dovre business. Dovre's EUR 3.0m EBIT topped our EUR 2.2m estimate (due to all three); Renewable Energy EBIT declined y/y (as the combination of busy construction season and inflation causes some challenges) but was nevertheless above our estimate. Dovre also made an upward revision to its guidance.

Renewable Energy and Consulting to drive FY ’23 EBIT

Dovre says this year has seen extraordinarily high growth (in our view the note concerns particularly Project Personnel) and such a level is not to be expected next year. This is no surprise, and we expect organic growth to slow to 7% in Q4. We have previously estimated an organic CAGR of 5% to be a reasonable long-term pace for Dovre, and we continue to expect such a rate for next year. We also see there to be further earnings growth potential especially within Renewable Energy; Suvic has managed well in terms of profitability despite the inflationary environment, and we see scope for margin improvement next year as wind farm demand remains high while the operating environment should be more normal. We continue to expect flattish profitability for Project Personnel going forward, while Consulting should be able to achieve earnings growth also next year.

Multiples are down, earnings growth potential attractive

We see a 5% growth rate realistic for next year and wouldn’t be surprised by a high single-digit rate, whereas such an organic double-digit rate as seen this year shouldn’t be expected. Dovre’s valuation is reasonable, around 8x EV/EBIT on our FY ’22 estimates, while we expect 50bps EBIT margin gain for next year. Peer multiples have retreated a bit, but we retain our EUR 0.75 TP and BUY rating as we make some upward estimate revisions.

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