Focusing On Waste Management And Energy Efficiency Will Streamline Future Operations

Key Takeaways

• Strategic focus on sustainability services positions the company to benefit from increasing demand for decarbonization, enhancing revenue growth and profitability.
  
• Divestment of low-margin businesses and reduced debt improve liquidity and profitability, allowing for investment in high-return areas.
  
• Strategic shifts towards sustainability and divestitures from low-margin units could harm revenue growth and earnings if execution and market conditions falter.

Catalysts

Provides integral services for business process efficiency and sustainability worldwide.

• The divestment of lower-margin businesses and operations that consume significant management resources allows the company to streamline its operations, focusing on higher-margin and more sustainable sectors, which is expected to improve net margins and overall profitability.
  
• The strategic shift towards sustainability services like industrial cleaning, waste management, and energy efficiency positions the company to capitalize on the growing demand for decarbonization and environmental solutions, driving future revenue growth.
  
• The divestiture of the maintenance service unit, expected to yield a capital gain of €11.6 million, will improve the balance sheet and provide additional liquidity, which could be used for investments with higher returns, thereby enhancing future earnings.
  
• The reduction in debt and the potential impact of lowering interest rates are expected to improve financial expenses over time, contributing to higher net profit margins.
  
• The company's strategic emphasis on sustainable services, which grew organically at 8.2% and reached record profitability margins of 12.6%, suggests strong future cash flows and earnings potential from these segments, reinforcing the value of focusing on high-growth, high-margin areas.

Global Dominion Access Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Global Dominion Access's revenue will grow by 2.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.0% today to 5.0% in 3 years time.
• Analysts expect earnings to reach €64.1 million (and earnings per share of €0.43) by about February 2028, up from €47.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.7x on those 2028 earnings, up from 10.1x today. This future PE is lower than the current PE for the GB IT industry at 22.5x.
• Analysts expect the number of shares outstanding to grow by 0.24% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.76%, as per the Simply Wall St company report.

Global Dominion Access Future Earnings Per Share Growth

Risks

• The disinvestment in the maintenance service unit in Spain is driven by low margins and high labor intensity, focusing resources away from potentially profitable segments, which may impact overall revenue growth.
  
• The restructuring efforts and strategic shift towards sustainable services could incur initial costs and uncertainties, impacting net margins if not effectively managed.
  
• Slow project execution, particularly in renewables, and delays such as those seen in the Dominican Republic, could result in missed revenue opportunities and increased financial expenses, negatively affecting earnings.
  
• The company's financial results reflect a 26% decrease in net attributable profit compared to the previous year due to unfavorable exchange rates and financial expenses, which could continue to pressure earnings if not addressed.
  
• The divestiture strategy, aiming to focus on higher-margin sustainability projects, involves risks of over-reliance on new, unproven markets, which could lead to inconsistent revenue performance if market conditions change.

Valuation

• The analysts have a consensus price target of €6.121 for Global Dominion Access 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 €7.8, and the most bearish reporting a price target of just €4.5.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.3 billion, earnings will come to €64.1 million, and it would be trading on a PE ratio of 20.7x, assuming you use a discount rate of 12.8%.
  
• Given the current share price of €3.2, the analyst price target of €6.12 is 47.6% 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.