Dovre - Preview - Finnish projects drive growth
Dovre reports Q4 results on Mar 17. Recent big losses ate some of the EUR 35m segment sale proceeds, yet growth outlook remains strong especially in Finland.
Construction challenges in Sweden, but Finland grows
Dovre downgraded FY’24 guidance as two wind farm projects in Sweden generated ca. EUR 10m in losses, and as a result the management of Suvic will also change. The Q4 losses of Renewable Energy amount to some EUR 18m; Dovre should be able to correct going forward, but the losses burn a large amount of the EUR 35m proceeds received from the recent segment sale. Renewable Energy reached EUR 99m top line already last year, and Suvic should continue to grow now that it begins to deliver an EPC project of EUR 55m for a solar farm as well as a battery storage contract (which we believe could be worth at least EUR 20m) in Finland. Suvic might yet sign another EUR 54m contract for a Finnish wind farm. These projects help secure a high workload for this year and next in a more familiar market, so Dovre has good chances of correcting course.
Net cash position still strong while workload remains high
We estimate Dovre should have a net cash position of roughly EUR 15m left after the most recent losses, still a significant sum although considerably smaller than the pile we previously estimated the company would have following the sale of its two segments. This leaves an EV of some EUR 10m, and we continue to estimate an EBIT of around EUR 1m for FY’25. Such a profitability level would still be very modest considering Renewable Energy is likely to reach well above EUR 100m in revenue. We thus believe EBIT will continue to recover after this year to around EUR 3m in FY’26, assuming Suvic signs additional projects later and manages to correct the problems.
Earnings to recover this year and next
Dovre is valued roughly 8x EV/EBIT on our FY’25 estimates, which isn’t very low however the earnings level has room to recover further next year. The recent cost overruns and questions around possible strategic moves create uncertainty in the short-term, but an EV of some EUR 10m isn’t a prohibitively high price when solar and wind energy continue to gain share in Finland as well as Sweden. Our new TP is EUR 0.25 (0.30) as we retain our ACCUMULATE rating.