Dovre - EBIT recovery & capital allocation
Dovre’s Q4 results were no surprise, while the company focuses on stabilizing Suvic after recent big cost overruns.
Balance sheet strong despite very big losses last year
Dovre downgraded its FY’24 guidance recently and so the Q4 earnings release didn’t contain much new information. The EUR -18.3m EBIT was hit by cost challenges due to two Swedish wind farm constructions. Dovre now undergoes a big change in focus as hit has sold Project Personnel and Consulting Norway, and it needs to stabilize Suvic’s profitability over the next few quarters before any decisions on the use of segmental sale proceeds may be settled. Dividend distributions are thus at least on a temporary pause, but there seems to be a good possibility those will be restored later as the company should have a net cash pile of more than EUR 15m once the sale settles.
EBIT of ca. EUR 1-2m should be possible in the near future
Dovre will issue FY’25 guidance at the latest in 6 weeks when it reports Q1 results. We continue to estimate high single-digit growth for Renewable Energy this year, when it could reach a rather modest EBIT margin of around 1-2%. Suvic did average more than EUR 2m EBIT in the years 2021-23, so our EUR 1.3m estimate for Renewable Energy FY’25 EBIT isn’t very high considering the segment now also includes the solar-focused developer Renetec while Suvic should have enough order backlog to push the segment above EUR 100m top line. The expansion to Swedish wind farms, as well as Finnish solar parks, has proved more challenging than expected as seen in the recent huge cost overruns, but there should be no fundamental reason why Suvic can’t manage the learning curve.
Capital allocation decisions may have to wait a few quarters
We estimate Dovre FY’25 revenue to grow 8% to EUR 107m. Consulting (Finland) may not contribute more than EUR 0.3-0.4m in annual EBIT, while there’s still some uncertainty around where Other functions’ costs will settle, but we believe their annual level could fall somewhat below EUR 0.5m. Dovre’s annual EBIT would then be basically wholly attributable to Renewable Energy. On that basis Dovre trades around 5x EV/EBIT, assuming Renewable Energy EBIT recovers above EUR 2m next year and of which a large part belongs to Suvic minority stake. Our new TP is EUR 0.23 (0.25) as we retain ACCUMULATE rating.