Expanding B2B Market Activities And New Concepts Like MORROW And FORMIUM Will Strengthen Future Prospects

Key Takeaways

• Expansion into the B2B market and innovative housing concepts promote revenue growth, margin improvement, and better production facility utilization.
  
• Strong order backlog and efficient execution support financial stability and potential margin expansion, benefiting from increased consumer demand.
  
• Weak performance in key markets, project delays, cash flow issues, and tax uncertainties could pressure profitability and require careful financial management.

Catalysts

Develops single-family detached houses in Denmark.

• HusCompagniet has observed an increase in consumer confidence and interest in house building, along with stable macroeconomic indicators such as strong employment and low core inflation. This could lead to increased sales and higher revenue as consumer demand picks up.
  
• The company has expanded its activities in the B2B market, which shows promise for continued growth and could potentially increase revenue and improve net margins due to higher volumes and better utilization of production facilities.
  
• HusCompagniet's strategic launch of new housing concepts like the MORROW and FORMIUM concepts aims to capture more market share and innovate within the industry, potentially driving higher revenue through differentiation in product offerings.
  
• A stronger order backlog of DKK 2.4 billion and a net order backlog increase of 66% suggest robust future revenue flows. The higher order book indicates the company is well-positioned to capitalize on market opportunities, supporting future revenue growth and financial stability.
  
• HusCompagniet is maintaining a focus on strict financial discipline and efficient project execution, which could support margin expansion and improved earnings, particularly as they target a return to profitability through enhanced operational efficiencies.

HusCompagniet Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming HusCompagniet's revenue will grow by 21.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.2% today to 4.1% in 3 years time.
• Analysts expect earnings to reach DKK 168.1 million (and earnings per share of DKK 8.66) by about March 2028, up from DKK -5.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.4x on those 2028 earnings, up from -214.9x today. This future PE is lower than the current PE for the DK Consumer Durables industry at 17.7x.
• Analysts expect the number of shares outstanding to decline by 5.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.25%, as per the Simply Wall St company report.

HusCompagniet Future Earnings Per Share Growth

Risks

• The revenue declined by 4% in 2024 compared to 2023 due to low activity in Sweden and delays in obtaining building permits for some B2B projects, which could indicate potential issues in scaling revenues.
  
• The free cash flow was negative by DKK 21 million in Q4, mainly due to changes in working capital with increased activity leading to more work in progress, which could strain liquidity and impact future earnings.
  
• There is uncertainty related to tax matters with the Danish authorities, including a potential additional expense of DKK 25 million if the authorities do not allow the reopening of certain taxable income statements, which could negatively impact net margins.
  
• The company recorded lower-than-expected average sales prices in the semi-detached segment, impacting gross profit margins, which could put pressure on future profitability if not addressed.
  
• The strategic expansion into the B2B market involves a significant ramp-up in SG&A costs to support growth, increasing the risk of reduced net margins and needing careful management to avoid affecting the bottom line adversely.

Valuation

• The analysts have a consensus price target of DKK69.333 for HusCompagniet based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be DKK4.1 billion, earnings will come to DKK168.1 million, and it would be trading on a PE ratio of 9.4x, assuming you use a discount rate of 8.3%.
• Given the current share price of DKK51.6, the analyst price target of DKK69.33 is 25.6% higher.
• 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.