Dovre - Recovering lost earnings
Project struggles continued further in Q1, but Dovre is taking measures so that Renewable Energy EBIT recovers and group costs come down.
Still some project profitability challenges
Dovre’s Renewable Energy segment grew in Q1 by 1% y/y to EUR 13.6m, close to our EUR 13.9m estimate. The segment’s EBIT however was EUR -2.8m vs our EUR 0.1m estimate as there were losses due to a Finnish solar park project, but which should eventually be profitable. Other group functions also had temporarily elevated cost levels, and Dovre’s EUR -3.2m was thus far below our EUR 0.1m estimate. The group functions will now be downsized, and we estimate their run-rate annual cost will be EUR 0.4m (in other words roughly similar to the EBIT of Consulting). We expect Dovre FY’25 revenue to decline 2% y/y as Renewable Energy focuses on securing profitability after the recent challenges.
EUR 2m EBIT shouldn’t be too big of a challenge
The additional losses seen in Q1 were disappointing, but Renewable Energy should be able to post positive EBIT in the coming quarters as it did some EUR 2.5m EBIT in Q2-Q3’24. We have cut our estimates more, but we expect Renewable Energy to post about EUR 1m in EBIT during the remainder of the year. Suvic has signed many new projects lately; it shouldn’t be too hard for the company to reach above 2% EBIT margins, but we estimate profitability will fall short of that level also next year. Renewable Energy and Suvic have plenty of addressable market in Finland and Sweden within both solar and wind power construction, so at this point it mostly comes down to the successful execution of internal measures.
Multiples not high assuming at least some EBIT recovery
We expect the next quarters will again be profitable, although FY’25 EBIT seems to remain in the red due to the weak Q1. We estimate FY’25 EBIT at EUR -2.3m, meaning we see a cumulative EBIT of EUR 0.9m beyond Q1. Renewable Energy may not grow this year, but it should be able to achieve an annual EBIT of EUR 2m with no more than roughly EUR 100m of revenue. Dovre is valued about 5x EV/EBIT on our FY’26 estimates, assuming Renewable Energy continues to recover its profitability while the EBIT of Consulting and other group functions costs balance each other out going forward. Our new TP is EUR 0.21 (0.23) as we retain ACCUMULATE rating.