Focus On Cost Management And Gardant Integration Will Improve Operational Efficiency

Key Takeaways

• Gardant acquisition and strategic expansion into non-NPL assets drive revenue growth and diversification, enhancing net margins and earnings stability.
  
• Strong client trust, operational efficiencies, and a solid capital structure bolster market share, ensuring increased future revenues and financial flexibility.
  
• The company's acquisition, competitive market pressures, rate risk exposure, reliance on secondary markets, and legislative delays may challenge revenue and financial stability.

Catalysts

Engages in the management of non-performing loans (NLP), unlikely to pay (UTP), early arrears, and performing loans for banks and investors in Italy, Spain, Greece, Cyprus, and Portugal.

• The Gardant acquisition and well-executed integration strategy are creating revenue synergies and profitability improvements by providing value-added services to Gardant customers, leading to revenue growth and diversification. This is expected to positively impact revenue and net margins.
  
• doValue's strong market position and client trust, as demonstrated by surpassing their business intake targets for 2024 and a strong start to 2025, reaching 70% of their annual target within the first two months, suggest that continued growth in market share will lead to increased future revenues.
  
• The strategic expansion into non-NPL assets, which typically offer higher margins, supports a more profitable revenue mix. This diversification is aimed at increasing net margins and earnings stability moving forward.
  
• Continuous efforts in cost management and realizing synergies from the Gardant integration are expected to enhance operational efficiency, thus supporting higher EBITDA margins and creating value for shareholders through improved earnings.
  
• The strengthened capital structure, including the redemption of 2026 notes and issuance of new 2030 notes, provides financial flexibility and mitigates refinancing risks, which should enhance future earnings growth and stability by reducing financial costs.

doValue Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming doValue's revenue will grow by 8.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.9% today to 8.1% in 3 years time.
• Analysts expect earnings to reach €47.7 million (and earnings per share of €0.25) by about March 2028, up from €18.2 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 15.1x on those 2028 earnings, down from 18.6x today. This future PE is lower than the current PE for the GB Commercial Services industry at 15.8x.
• Analysts expect the number of shares outstanding to decline by 0.13% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.91%, as per the Simply Wall St company report.

doValue Future Earnings Per Share Growth

Risks

• The recent acquisition of Gardant could lead to integration challenges, potentially impacting efficiency and operational costs, thereby affecting net margins.
  
• The competitive landscape in Spain, with significant declines in gross revenues by 20% due to a challenging real estate market, may pressure revenue streams.
  
• The company's exposure to interest rate risks due to significant financial charges from new term loans and bond issuances could affect net income and financial stability.
  
• The reliance on secondary market transactions, which are subject to seller timing and decision-making, introduces uncertainty and could lead to fluctuations in revenue.
  
• Potential delays or changes in the legislative process regarding tax credit collections in Italy could impact expected future revenues and diversify revenue streams.

Valuation

• The analysts have a consensus price target of €2.517 for doValue 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 €2.85, and the most bearish reporting a price target of just €2.1.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €585.2 million, earnings will come to €47.7 million, and it would be trading on a PE ratio of 15.1x, assuming you use a discount rate of 14.9%.
• Given the current share price of €1.79, the analyst price target of €2.52 is 29.0% 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.