Service Solutions Development And Division Mergers Will Improve Future Operations

Key Takeaways

• Focus on large, complex infrastructure projects aims to drive profitability and enhance EBIT margins positively.
  
• Mergers and division reorganizations are set to boost efficiency and client integration, improving revenue and margins.
  
• Integration risks from the Real Estate and Buildings merger, coupled with reliance on one-off profits, could hinder stable financial growth and transparency.

Catalysts

Provides construction and real estate services primarily in Switzerland, Germany, Austria, Norway, Sweden, France, and internationally.

• Implenia's strategic focus on large and complex infrastructure projects is expected to drive profitability and margin expansion in the future, positively impacting EBIT margins and net earnings.
  
• Mergers and reorganization of divisions, such as combining Real Estate and Buildings, are expected to enhance operational efficiency and client integration, potentially leading to improved revenue streams and margin enhancements.
  
• The development of new business opportunities and innovations within the Service Solutions division is expected to generate additional revenue and contribute to higher overall net margins.
  
• The incoming payment from the Ina Invest contract in 2025 is expected to positively impact cash flow, supporting profitability and financial stability.
  
• Continued focus on operational excellence and economies of scale aims to sustainably increase profitability and further boost EBIT margins over the medium term to a target of over 4.5%.

Implenia Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Implenia's revenue will grow by 1.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.6% today to 2.9% in 3 years time.
• Analysts expect earnings to reach CHF 107.8 million (and earnings per share of CHF 5.9) by about March 2028, up from CHF 92.4 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as CHF119 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.8x on those 2028 earnings, up from 8.5x today. This future PE is lower than the current PE for the GB Construction industry at 14.4x.
• Analysts expect the number of shares outstanding to decline by 0.06% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.18%, as per the Simply Wall St company report.

Implenia Future Earnings Per Share Growth

Risks

• The challenging market situation and reduced project sales in the Real Estate division could potentially limit revenue growth if the trend continues. Real Estate projects rely on sales to generate profits and cash flow, and adverse market conditions may impact the division's performance.
  
• The merger of the Real Estate and Buildings divisions may lead to integration risks and potential loss of transparency, which could affect the operational efficiency and financial performance of these segments.
  
• The reliance on large-scale complex projects means exposure to execution risk, which could impact EBIT margins if projects encounter delays or cost overruns—especially in markets like Germany where residential construction is currently challenging.
  
• The company’s profit increase was significantly influenced by one-off effects, such as the CHF 31 million from a contract adjustment with Ina Invest. Relying on similar non-recurring items in the future might not sustain consistent EBIT growth.
  
• The strategic focus on high-margin areas such as planning and consulting suggests a shift towards asset-light operations; however, it may also imply potential revenue instability, should service demand in these areas decline.

Valuation

• The analysts have a consensus price target of CHF43.0 for Implenia based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CHF48.0, and the most bearish reporting a price target of just CHF40.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CHF3.7 billion, earnings will come to CHF107.8 million, and it would be trading on a PE ratio of 8.8x, assuming you use a discount rate of 7.2%.
• Given the current share price of CHF42.9, the analyst price target of CHF43.0 is 0.2% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.