Eurocon
Eurocon - Slow start to the year (ABG Sundal Collier)
2019-05-21 18:02
Acquisition of Pidab drove sales growth in Q1
We lower our short-term expectations
EV/EBIT of 12x, and dividend yield of 5.5% for ’19e
Q1: sales +6% y-o-y , lower EBIT margin of 6.3%Q1 started slowly for Eurocon, with low billing ratios in parts of its regions, coupled with delayed project starts hampering both sales and earnings. The overall sales figure of SEK 74.4m was in line with our expectations but the composition differed. The company grew sales by 6% in Q1 (-5% organic), while its latest acquisition Pidab contributed SEK 7.5m. The EBIT margin of 6.3% is lower than we are accustomed to from Eurocon, and well below its target of 10% on a yearly basis. However, we recognise several explanations for the weaker-than-anticipated performance. Among them, we assess that customers have been more apprehensive regarding investment decisions in the beginning of the year. In addition, the company organised an internal conference for its entire staff in Q1, affecting both top line and profitability.
Larger EBIT revisions for ‘19e
According to management, Eurocon’s project pipeline seems to have stabilised towards the end of Q1, and it also received a larger product order. Hence, the combined effect enhances our view of an uptick in profitability in the quarters ahead compared with Q1. Furthermore, we continue to believe that Eurocon will work hard to find new consultants to meet future demand from its customers. Also, note that Q2 this year has one less working day, with a negative Easter impact clouding Q2 to some extent. Overall, we lower our EBIT estimate by 18% for ’19e, primarily an effect of lowered billing ratios and a slightly higher cost base from Pidab.
EV/EBIT of 12x for 2019e
Given the slow start to the year, we now believe that it will be tougher for Eurocon to reach its yearly target for an EBIT margin of 10%. In our view, the company lacks one or two larger projects in order for earnings to pick up, and margins to bounce back to average levels. On our revised
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