Etteplan - Soft market presents a buying opportunity
We expect the slow market to continue to impact Etteplan in 2024, while acquisitions support net sales growth. Signs of market improvement are evident, and the long-term case remains attractive. We retain our TP at EUR 14.5 while upgrading our recommendation to BUY (prev. HOLD).
A trusted engineering partner with global experience
Etteplan is a global engineering technology company with a multiphase offering that consists of Engineering, Software & Embedded and Technical Communication solutions. Over half of Etteplan’s revenue is based on managed services where the company takes full or comprehensive control of a customer’s project or process. Through its managed services driven business model and complimentary offering and expertise, the company has become a strategic partner for several blue-chip corporations in Finland and abroad. Etteplan’s business model requires a limited amount of tangible investment, and as a result, the good cash flow generation ability has funded its inorganic growth, enabling the company to expand its reach and diversify its operations globally.
Acquisitions drive growth in 24E while market remains slow
FY 2023 proved to be a difficult one for Etteplan as it suffered from the weakening end-market across its service offering. The first quarter of 2024 was a step into right direction as Etteplan was able to improve its profitability as expected and the company saw signs of improvement in market sentiment. While some market improvement is expected especially for H2, we estimate slow organic growth for 2024 while acquisition made in 2023 and H1/2024 boost the overall growth. With the estimated growth and further self-help, we expect profitability to improve y/y in 2024. In the long term, we estimate Etteplan to reach over 10% EBITA margin level yet we still see a somewhat limited potential to boost profitability significantly beyond the 10% mark.
BUY (prev. HOLD) with a TP of EUR 14.5
Etteplan trades at a discount to both its own historic multiple levels and its peer group. We note that a slight premium to peer group is justified driven by the above average margins, capital efficiency, and strong cash flow generation capability. While the market presents challenges in the short term, some preliminary signs of an improved market can already be seen ahead.