Cost Savings Of SEK 20 Million Will Improve Operational Efficiency

Key Takeaways

• Successful integration and strategic acquisitions enhance future revenue growth prospects, improve margins, and position Fasadgruppen well in professional markets.
  
• Focus on deleveraging and operational efficiency should strengthen the financial structure and improve profitability metrics.
  
• Weak Swedish market performance, rising debt, and suspended dividends indicate financial strain, while restructuring will delay margin improvements, posing long-term challenges.

Catalysts

Operates as a service provider of facades in Sweden, Denmark, Norway, and Finland.

• The integration of Clear Line into Fasadgruppen has been successful, showing positive impacts on results with a strong order backlog, which suggests potential future revenue growth and improved order backlog margins through increased prices. This should positively impact revenue and possibly margins as projects are completed.
  
• The strategic shift towards a flatter organizational structure is expected to enhance operational efficiency and reduce costs over time, with anticipated cost savings of SEK 10 million to SEK 20 million, potentially improving net margins and earnings.
  
• Fasadgruppen's diversification into other Nordic countries and the UK, notably with the Clear Line acquisition focusing on façade fire remediation post-Grenfell, positions them well within a professional market that offers better margin opportunities, potentially leading to higher revenue and net margins.
  
• The company's effort to focus on deleveraging and profitability improvements, by taking down debt and enhancing operational efficiency, aims to strengthen the financial structure, reduce net debt/EBITDA, and improve profitability metrics moving forward.
  
• The high order backlog, including a SEK 1 billion backlog from Clear Line, and an increase in order backlog margins indicate strong future revenue streams. This backlog (projected to start 6-9 months from signing) suggests potential for revenue growth and improved earnings stability in the near term.

Fasadgruppen Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Fasadgruppen Group's revenue will grow by 12.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.0% today to 6.7% in 3 years time.
• Analysts expect earnings to reach SEK 471.0 million (and earnings per share of SEK 9.13) by about May 2028, up from SEK 600.0 thousand 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 6.1x on those 2028 earnings, down from 1751.2x today. This future PE is lower than the current PE for the SE Construction industry at 16.1x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.96%, as per the Simply Wall St company report.

Fasadgruppen Group Future Earnings Per Share Growth

Risks

• The Swedish operations experienced an unusually weak fourth quarter, contributing to an organic sales decline of about 15.6%. This could negatively affect overall revenue if the situation persists.
  
• Competitive pressure in Sweden is continuing, and the low demand in new construction has led to reduced activity levels, which could further compress profit margins in that market.
  
• The company's key financial covenant, net debt to adjusted EBITDA pro forma, stands at 3.3x, exceeding the target of 2.5x and increasing financial risk if not reduced, which may affect earnings.
  
• The company has removed its dividend policy and will not pay dividends in 2024, indicating cash flow concerns and prioritizing debt reduction over returning value to shareholders.
  
• Organizational restructuring and cost-saving measures are anticipated to yield benefits only in the long term, with expected savings not fully realized until a year later, which could delay improvements in net margins.

Valuation

• The analysts have a consensus price target of SEK33.5 for Fasadgruppen Group 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 SEK42.0, and the most bearish reporting a price target of just SEK25.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK7.0 billion, earnings will come to SEK471.0 million, and it would be trading on a PE ratio of 6.1x, assuming you use a discount rate of 10.0%.
• Given the current share price of SEK19.56, the analyst price target of SEK33.5 is 41.6% 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.