Focus On High-Margin Projects And Acquisitions Will Improve Future Earnings

Key Takeaways

• Bravida's focus on high-margin projects and service growth aims to enhance profitability and future revenue stability despite market challenges.
  
• Strong cash conversion and low debt allow Bravida to pursue acquisitions, potentially increasing revenue through market consolidation and expanded services.
  
• The company faces revenue challenges from flat and negative growth, declining order intake, financial risks from unpaid receivables, and margin issues in certain regions.

Catalysts

Provides technical services and installations for buildings and industrial facilities in Sweden, Norway, Denmark, and Finland.

• Bravida's strategy of strict project selection, focusing on projects with better margins, is expected to improve future profitability, which can enhance net margins and earnings.
  
• The ongoing margin improvements in Denmark, Norway, and Finland, particularly the turnaround in Denmark, are expected to contribute positively to the overall EBITA margin, enhancing earnings growth.
  
• The strong cash conversion and low debt level provide Bravida with the financial flexibility to pursue further acquisitions, which can drive future revenue growth through market consolidation and expanded service offerings.
  
• The anticipated market recovery, especially in infrastructure, industry, defense facilities, and civil engineering sectors, presents potential growth opportunities for Bravida, which could lead to increased revenue and improved order intake in the future.
  
• The focus on service growth, which has shown resilience with a 5% increase even in tough market conditions, is expected to be a key driver of future revenue stability and potential margin improvements, given the higher margins typically associated with service operations.

Bravida Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bravida Holding's revenue will grow by 2.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.6% today to 5.1% in 3 years time.
• Analysts expect earnings to reach SEK 1.6 billion (and earnings per share of SEK 7.99) by about February 2028, up from SEK 1.1 billion 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 14.3x on those 2028 earnings, down from 18.1x today. This future PE is lower than the current PE for the GB Commercial Services industry at 19.5x.
• Analysts expect the number of shares outstanding to decline by 0.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.67%, as per the Simply Wall St company report.

Bravida Holding Future Earnings Per Share Growth

Risks

• The company has experienced flat growth and negative organic growth, highlighting potential challenges in increasing revenue in tough market conditions.
  
• Order intake declined by 26%, impacted by project selectiveness and tough comparisons, suggesting potential future revenue challenges if new projects are not secured.
  
• Margins have improved but remain challenged in certain regions like Sweden's south, which could impact overall net margins if significant recovery does not occur.
  
• The order backlog is considered only at an okay level, meaning there could be risks to future earnings if projects are not secured soon, particularly with market recovery uncertain.
  
• The presence of significant unpaid receivables presents a financial risk that could impact net earnings and overall financial stability if not resolved timely.

Valuation

• The analysts have a consensus price target of SEK97.333 for Bravida Holding 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 SEK112.0, and the most bearish reporting a price target of just SEK85.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK32.2 billion, earnings will come to SEK1.6 billion, and it would be trading on a PE ratio of 14.3x, assuming you use a discount rate of 5.7%.
  
• Given the current share price of SEK93.35, the analyst price target of SEK97.33 is 4.1% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.