Implementing New ERP Systems In Germany Will Boost Future Operational Efficiency

Key Takeaways

• Focus on core operations and discontinuation of non-core segments could improve margins, particularly strengthening net margins in Germany.
  
• Prudent M&A strategy and improved cash flow enhance potential for stable earnings and positive future investments.
  
• Challenges in Germany and M&A endeavors, along with investment needs and operating expenses, risk straining margins and impacting strategic growth.

Catalysts

Provides underground infrastructure maintenance services in Northern Europe.

• Discontinuation of non-core operations in Jutzy could lead to better margins, particularly enhancing net margins in Germany by focusing on the healthier core UIM business.
  
• Implementation of a new business platform in Germany, including ERP and field services management systems, is expected to improve operational efficiency and utilization of equipment, potentially boosting earnings and margins.
  
• Continuous strong revenue growth across all regions, excluding non-core operations, highlights robust core business performance with potential positive impacts on future revenue.
  
• M&A strategy adjustment with focus on prudent acquisitions could enhance revenue growth without the risks associated with past underperforming acquisitions, potentially leading to more stable earnings.
  
• Strong cash flow and cash conversion improvements position the company well for future investments and growth, impacting overall earnings positively.

Norva24 Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Norva24 Group's revenue will grow by 6.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.9% today to 7.6% in 3 years time.
• Analysts expect earnings to reach NOK 328.0 million (and earnings per share of NOK 1.85) by about April 2028, up from NOK 176.8 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 24.1x on those 2028 earnings, down from 40.3x today. This future PE is greater than the current PE for the SE Commercial Services industry at 17.7x.
• Analysts expect the number of shares outstanding to decline by 0.32% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.54%, as per the Simply Wall St company report.

Norva24 Group Future Earnings Per Share Growth

Risks

• The underperformance and wind-down of the non-core Jutzy Haustechnik in Germany pose a risk, as it has negatively impacted margins and requires careful management to not affect future earnings negatively.
  
• The inability to complete the Vitek transaction and the potential challenges in acquiring sizable entities in Norway could hinder intended revenue and strategic growth through mergers and acquisitions (M&A).
  
• The necessity for significant new investments, driven by increasing capacity requirements and compliance with stricter carbon-neutral vehicles, can strain capital and impact overall net margins.
  
• Despite actions being taken, the German market is currently experiencing challenging economic conditions, which could limit margin improvements and organic growth in that region, potentially affecting overall financial performance.
  
• Higher other operating expenses primarily related to M&A costs and ongoing lease liabilities could contribute to reduced net margins and added financial strain if not managed carefully.

Valuation

• The analysts have a consensus price target of NOK34.5 for Norva24 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 NOK36.5, and the most bearish reporting a price target of just NOK30.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be NOK4.3 billion, earnings will come to NOK328.0 million, and it would be trading on a PE ratio of 24.1x, assuming you use a discount rate of 5.5%.
• Given the current share price of NOK36.15, the analyst price target of NOK34.5 is 4.8% lower. 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.