Power And Telecom Projects Will Shape European Markets

Key Takeaways

• Strategic focus and resource allocation through divestment and new agreements support revenue growth and net margin improvement in key European markets.
  
• Enhanced operational efficiency through digital tools and improved cash flow positively impact liquidity, reducing financial leverage and supporting earnings growth.
  
• Heavy reliance on Sweden and Norway and strong competition in Infraservices threaten revenue stability and future profitability.

Catalysts

Provides construction and maintenance services for communication infrastructure and power networks in Sweden, Norway, Finland, Germany, and the United Kingdom.

• The growing order backlog and strong tender season indicate a solid pipeline of future projects, particularly in Power and Telecom, that could drive revenue growth in the coming years.
  
• The divestment of Finnish operations is set to free up resources, allowing Netel to focus on its core and growth markets in Sweden, Norway, Germany, and the U.K., potentially improving net margins through strategic focus and efficiency gains.
  
• Recent framework agreements, particularly with Glitre Nett and Tele2, provide a stable revenue base and the opportunity for geographic expansion, increasing the likelihood of revenue growth and margin improvement over time.
  
• The implementation of new digital tools is expected to enhance operational efficiency and positively impact margins as fine-tuning continues throughout the year, potentially leading to higher earnings.
  
• Seasonal cash flow improvements and the absence of significant one-off costs (such as earn-outs) in 2025 will help improve liquidity and the net debt position, supporting EPS growth as financial leverage decreases.

Netel Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Netel Holding's revenue will grow by 4.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.7% today to 4.1% in 3 years time.
• Analysts expect earnings to reach SEK 155.5 million (and earnings per share of SEK 2.71) by about May 2028, up from SEK 56.0 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 7.4x on those 2028 earnings, down from 8.9x 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 remain consistent over 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.

Netel Holding Future Earnings Per Share Growth

Risks

• Strong price competition in Infraservices has led to lower margins, and continued high competition is expected in 2025, potentially impacting future profitability.
  
• Seasonality in the business results in lower volumes and decreased cash flow in the first quarter, which can strain financial performance in terms of earnings and cash management.
  
• The company remains above its capital structure target on net leverage, with net debt at 3.0x compared to the target of 2.5x, indicating potential risk to financial stability or flexibility.
  
• The Telecom division, which is the largest by sales, is currently below desired profitability levels, with a low EBITDA margin of 0.8%, suggesting a need for improvements to meet financial targets.
  
• Dependence on a few markets (Sweden and Norway account for 93% of sales) exposes the company to regional economic fluctuations, which could affect revenue stability if these markets experience downturns.

Valuation

• The analysts have a consensus price target of SEK18.0 for Netel Holding 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 SEK3.8 billion, earnings will come to SEK155.5 million, and it would be trading on a PE ratio of 7.4x, assuming you use a discount rate of 10.0%.
  
• Given the current share price of SEK10.32, the analyst price target of SEK18.0 is 42.7% 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.