Focus On Energy And Defense Sectors Will Strengthen Future Operations

Key Takeaways

• Strategic focus on energy, defense, and urban sectors, along with solid order backlog, sets stage for revenue growth.
  
• Improved project execution and billing practices, alongside employee investment, may enhance net margins and operational performance.
  
• Rising costs and market challenges, including employee issues and increased competition, are pressuring profit margins and threatening future earnings and growth prospects.

Catalysts

Engages in the provision of engineering design, consultancy, and architecture services in Norway and internationally.

• Multiconsult has a solid order backlog of NOK 4.9 billion and a strong pipeline, indicating potential future revenue growth from secured projects and frame agreements, particularly in the defense and energy sectors. (Revenue)
  
• The company has demonstrated improved project execution and risk management, which should result in reduced fluctuations in project write-downs and potentially enhance net margins over time. (Net Margins)
  
• The strategic focus on high-demand sectors like energy, defense, and urban transformation has led to significant new contracts, such as the electrification of offshore platforms and defense infrastructure, which could drive revenue growth. (Revenue)
  
• Increased billing rates and billing ratios, as seen with improvements year-over-year, may lead to better revenue realization and potentially higher net margins if cost increases are managed. (Net Margins and Revenue)
  
• The employee share program, with 85% of employees holding shares, may enhance productivity and engagement, contributing to sustained or improved operational performance and thus positively impacting earnings. (Earnings)

Multiconsult Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Multiconsult's revenue will grow by 6.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 7.7% today to 6.7% in 3 years time.
• Analysts expect earnings to reach NOK 426.5 million (and earnings per share of NOK 15.48) by about March 2028, up from NOK 416.5 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 16.5x on those 2028 earnings, up from 12.0x today. This future PE is lower than the current PE for the GB Construction industry at 24.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.41%, as per the Simply Wall St company report.

Multiconsult Future Earnings Per Share Growth

Risks

• Increased employee benefit expenses and other operating expenses led to a decrease in EBITA margin, indicating potential pressure on profit margins and net earnings.
  
• There is a consistent challenge with high sick leave and temporarily laid-off employees, which could affect overall productivity and operational efficiency, impacting net margins and revenues.
  
• The decrease in EBITA despite increased net operating revenue suggests rising costs are cutting into profits, which could affect future earnings if not controlled.
  
• The architecture segment faces market challenges, especially in Oslo, leading to reduced capacity and layoffs, which could impact revenue growth and net margins in this segment.
  
• Increased competition and continued uncertainty in some markets present risks to revenue growth and potential pressure on profit margins.

Valuation

• The analysts have a consensus price target of NOK209.75 for Multiconsult 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 NOK225.0, and the most bearish reporting a price target of just NOK180.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be NOK6.4 billion, earnings will come to NOK426.5 million, and it would be trading on a PE ratio of 16.5x, assuming you use a discount rate of 7.4%.
• Given the current share price of NOK181.0, the analyst price target of NOK209.75 is 13.7% 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.