Enersense - Investments to continue
Q4 close to estimates, FY ’23 profitability guidance soft
Enersense top line grew 37% y/y to EUR 90m vs our EUR 87m estimate. All four segments grew, especially Power and International Operations (high-voltage projects in the Baltics drove revenue). Power’s EUR 8.7m y/y EBITDA gain included EUR 7.5m in wind power gains as the projects progressed faster than expected. Other segments’ profitability levels didn’t fare that well compared to Q4’21 as inflation hadn’t yet surged then. Investments in the ERP system and offshore wind power subtracted EUR 2.7m. Voimatel deal costs also weighed Q4; we hadn’t included the deal in our estimates but note it would’ve been a positive driver should it have gone through. The EUR 4.3m adj. EBITDA topped our estimate by EUR 0.4m while the EUR 1.1m EBIT missed our estimate by EUR 0.6m. Guidance didn’t surprise in terms of revenue, however the expectation for adj. EBITDA was soft (EUR 15m midpoint vs our EUR 20m estimate).
We make downward revisions to our profitability estimates
We cut our profitability estimates for FY ’23 by EUR 5.5m while we make minor upward revisions to our top line estimates. Last year’s Q2 was exceptionally soft due to project delays and a Finnish ICT strike. FY ’23 should see more regular project patterns, in addition to which inflation is moderating and at least is no more any surprise. The ERP system costs will increase this year, in addition to which wind power developments, both onshore and offshore, will create additional costs.
Longer term upside potential, lacks short-term drivers
Enersense is valued almost 20x EV/EBIT on our FY ’23 estimates, which in our view reflects the fact that profitability will remain below potential this year due to investments in the ERP system and wind power. Last year’s results were plagued by inflation, and even though the situation is easing we believe some cost headwinds will remain this year. Double-digit growth is likely to continue, and we estimate decent single-digit growth for FY ’24. Earnings growth potential is thus strong from a medium-term perspective, but margins may stay somewhat muted in the short-term. The valuation equals 8x EV/EBIT on our FY ’24 estimates. Our new TP is EUR 6.5 (7.0); we retain our HOLD rating.