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.
Dovre’s Q3 results were clearly above our estimates as all three segments recorded figures higher than we had expected. Dovre also issued a positive guidance update yesterday; our latest estimates would still be in line with the new guidance, but the very strong Q3 report suggests our Q4 estimates are too modest.
Dovre’s Q2 EBIT came in above our estimate due to Project Personnel. There were no big surprises; we expect earnings growth to continue also next year.
Another strong quarter for Project Personnel
Dovre grew 38% y/y to EUR 47.3m top line vs our EUR 50.5m estimate. Project Personnel and Consulting landed close to our estimates, while Renewable Energy fell EUR 3m short. We reckon late Finnish spring to have caused Suvic project delays, but the segment didn’t disappoint in terms of EBIT as it posted a big y/y improvement despite Q2 being relatively slow and this year also challenged by an inflation spike. Consulting EBIT was as expected as progress continued in both Norway and Finland. Consulting is still mostly driven by early-stage reviews of Norwegian civil & infrastructure projects, however the acquisition of eSite has added a new angle to serve Finnish industrial clients with VR solutions. Extended high demand in Norway also helped Project Personnel to top our EBIT estimate, and as a result Dovre’s EUR 1.7m EBIT came in easily above our EUR 1.2m estimate.
Renewable Energy could still drive another positive revision
Dovre revised its guidance only two weeks ago, so it came as no surprise there was no further upgrade despite the continued high Q2 profitability and demand outlook for H2. Oil prices stay high, which supports oil & gas capex levels and hence Project Personnel, but risks seem to tilt more towards downside from here on. We estimate 4.5% FY ‘22 EBIT margin for Project Personnel, which is more than a satisfactory level yet still short of long-term potential. We continue to expect only flat PP EBIT development for next year. Covid-19 may still cause some sick leaves, while extraordinary inflation rates tend to be more of an issue for Renewable Energy than the other two segments. Q3 is seasonally the best one for Suvic but it may not achieve y/y EBIT improvement this year due to a very strong comparison period.
EUR 7.5m EBIT leaves ample room for earnings growth
We see Dovre headed towards the upper end of its EBIT guidance range. Suvic’s H2 performance could yet lead Dovre to top the range, while Consulting should be able to resume earnings growth next year. Renewable Energy’s expansion is also set to continue. We see potential for EBIT to improve to EUR 9m next year and thus we revise our TP to EUR 0.75 (0.70); retain BUY.
Dovre’s Q2 profitability topped our estimates mostly thanks to Project Personnel, where demand remained high particularly in Norway.
Dovre revised its guidance up earlier than we expected. We make some estimate updates, but we don’t see major news.
We don’t see any big news behind the guidance revision
Dovre specified its guidance somewhat earlier than we would have expected. The old guidance suggested revenue above EUR 165m and EBIT of more than EUR 6.1m, whereas the new guidance is for revenue above EUR 185m and EBIT in the range of EUR 6.5-7.5m. Our previous estimates were respectively for EUR 200.9m and EUR 8.4m. Dovre sees no negative changes in demand, which we do not consider especially surprising considering the three segments’ favorable positioning within energy markets as well as the Norwegian civil and infrastructure sectors. Our updated FY ‘22 revenue and EBIT estimates stand at EUR 199.1m and EUR 7.4m respectively.
Renewable Energy is operating in a busy environment
We leave our FY ’22 estimates for Consulting intact ahead of the report. We make minor downward revisions for Project Personnel; the segment had a very strong Q1 thanks to its favorable positioning within the Norwegian oil & gas sector. We previously estimated 4.2% EBIT margin for FY ’22, but we revise the estimate slightly down to 4.0%. We continue to expect similar levels for the coming years, although we don’t consider 5% EBIT that challenging as a long-term target. Our downward revisions concern mostly Renewable Energy. We would expect the specialty construction business to proceed mostly according to plan as Suvic is set to deliver some EUR 90m in Finnish wind farm projects this year. Materials challenges, including steel availability and prices, have not come as a surprise, but there’s still some uncertainty around execution and supplier networks given the current high demand. We thus revise our EBIT estimate for Renewable Energy down to EUR 2.8m from EUR 3.6m.
Still more earnings potential over the following years
We estimate Dovre’s FY ’22 EBIT margin at 3.7%, down from our previous estimate of 4.2%; in our view all three segments have further potential to improve beyond this year. Earnings growth outlook remains solid as before, while there have been no major changes in peer multiples. Dovre is valued around 9x EV/EBIT on our FY ’22 estimates, and SOTP valuation still implies upside. We retain our EUR 0.70 TP and BUY rating.
Dovre is now in a favorable position in the sense that demand is robust for all three segments, yet we expect earnings growth to continue well beyond this year.
Project Personnel continues to perform this year
The Norwegian oil and gas sector continues to stand in a favorable spot, and Project Personnel delivered solid figures already in FY ’21; performance continued to improve towards the end of the year with no sign of inflation affecting the results. Q1’22 results demonstrated no sign of weakness. Meanwhile there was some softness in Consulting due to a high comparison period, however the segment has always been a stable performer and we expect earnings growth again next year. Project Personnel may be in a particularly favorable spot right now, but Consulting has arguably more long-term potential. This would require successful execution in terms of new customers; Dovre may also find M&A targets to help growth. The new customers will probably not be too far from Consulting’s core Norwegian public sector civil and infrastructure projects, yet the segment could be looking to expand in Finland as well.
Consulting and Renewable Energy have more potential
Inflation does not seem to bother Project Personnel or Consulting, and even Renewable Energy appears to have been able to anticipate certain challenges well enough. We estimate EUR 201m revenue for this year and see EBIT at EUR 8.4m. The 4.2% EBIT margin would already be very decent, and translate to a high double-digit ROI, but we estimate Dovre’s profitability has more long-term potential as the results for Consulting and Renewable Energy are likely to remain a bit modest this year. The outlook for Dovre’s key client sectors is robust; we view our 5% organic CAGR estimates moderate. We also see Dovre’s EBIT margin poised to climb towards 5% in the coming years even when we estimate a conservative 4% EBIT margin for Project Personnel.
Valuation is not demanding
We regard SOTP the most appropriate way to value Dovre with its three distinct segments. We see the fair range around EUR 0.70-0.75 per share based on the FY ’21-22 peer multiples. We tilt towards the lower end of the range as valuations have been under pressure lately. Our TP is EUR 0.70; our rating is BUY.
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