Last Update 18 May 26
Fair value Decreased 1.49%NCC B: Extra Dividend And New Nordic Contracts Will Support Upside Potential
Analysts have adjusted their price target for NCC to SEK220.00 from SEK223.33, reflecting updated assumptions around revenue growth, profit margins, the discount rate, and a lower expected future P/E multiple.
What's in the News
- NCC signed 12 one year asphalt contracts in Norway with the Norwegian Public Roads Administration and several counties, with a combined order value of about SEK 680 million, all including a 30% CO2 weighting requirement in procurement (Client Announcements).
- The company agreed with the City of Porvoo to build a new 7,000 square meter elementary school for around 450 students in Finland, an order valued at about SEK 270 million, with completion planned for spring 2028 (Client Announcements).
- NCC was commissioned to refurbish the main building of the National Archives of Finland in Helsinki, a project covering about 18,500 square meters and valued at roughly SEK 480 million, with work scheduled to run from spring 2026 to late 2028 (Client Announcements).
- Shareholders at the 2026 AGM approved an extra dividend of SEK 2.00 per share for the 2025 fiscal year, with a record date of May 7, 2026 and payment expected on May 12, 2026 (Special Dividend Announced).
- NCC and Region Norrbotten entered a partnering agreement for a new hospital in Kiruna, covering approximately 40,000 square meters plus surrounding infrastructure. The first phase is focused on design, planning, costing and target cost setting ahead of construction contracts (Client Announcements).
Valuation Changes
- Fair Value: The SEK223.33 estimate has been trimmed slightly to SEK220.00.
- Discount Rate: The discount rate has risen from 7.08% to 7.64%, implying a higher required return in the model.
- Revenue Growth: The revenue growth assumption has shifted from 3.71% to 5.43%.
- Net Profit Margin: The profit margin assumption has moved from 2.81% to 4.00%.
- Future P/E: The expected future P/E multiple has been reduced from about 15.2x to about 10.5x.
Key Takeaways
- Strong financial position and low net debt support strategic M&A initiatives for future revenue growth and margin expansion.
- Focus on sustainability and CO2 reduction targets could enhance operational efficiencies and improve profit margins.
- Strengthening of the Swedish Krona, a muted property market, and competitive pricing pressures threaten NCC's revenues, profits, and financial projections.
Catalysts
About NCC- Operates as a construction company in Sweden, Norway, Denmark, and Finland.
- The company's strong financial position and balance sheet readiness for selective mergers and acquisitions (M&A) can act as a catalyst for future revenue growth and margin expansion.
- Positive outlook for key contracting segments such as water treatment, energy generation, and infrastructure suggests potential for sustained revenue growth.
- Low net debt level provides financial flexibility, contributing to a positive outlook for earnings stability and potential margin improvement.
- Completion and high letting ratios in the property development portfolio, particularly the Cleantech project in Finland, could drive future earnings contributions once market conditions improve.
- Ongoing progress towards sustainability and new CO2 reduction targets may enhance operational efficiencies, potentially leading to improved profit margins.
NCC Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?
- Analysts are assuming NCC's revenue will grow by 5.4% annually over the next 3 years.
- Analysts assume that profit margins will increase from 0.2% today to 4.0% in 3 years time.
- Analysts expect earnings to reach SEK 2.5 billion (and earnings per share of SEK 19.02) by about May 2029, up from SEK 92.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as SEK1.8 billion.
- In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 10.6x on those 2029 earnings, down from 203.8x today. This future PE is lower than the current PE for the GB Construction industry at 17.5x.
- 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 7.64%, as per the Simply Wall St company report.
Risks
What could happen that would invalidate this narrative?- The strengthening of the Swedish Krona negatively impacts the order backlog when translated, potentially affecting reported revenues.
- The Property Development unit hasn't recognized any sales of properties this quarter, and a muted property transaction market could further hinder revenue and earnings growth.
- Seasonally low EBIT due to slow first-quarter sales might not recover quickly if market demand changes, affecting overall profitability.
- Uncertain prospects for divesting the Industry business could impact financial results if expectations for this sale are built into future earnings projections.
- Potential pricing pressure from smaller competitors on less complex projects in Sweden and Finland could lower profit margins if significant cost control isn't maintained.
Valuation
How have all the factors above been brought together to estimate a fair value?
- The analysts have a consensus price target of SEK220.0 for NCC 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 SEK250.0, and the most bearish reporting a price target of just SEK195.0.
- In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be SEK63.6 billion, earnings will come to SEK2.5 billion, and it would be trading on a PE ratio of 10.6x, assuming you use a discount rate of 7.6%.
- Given the current share price of SEK191.7, the analyst price target of SEK220.0 is 12.9% 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.
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Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.