Eurocon Consulting
Eurocon - A lacklustre end to 2019 (ABG Sundal Collier)
2020-02-25 15:36
Utilisation set to increase in 2020
Margin recovery rather than growth, short-term
Share trades at EV/EBIT 15.2x for 2020e
Q4: Net sales -10% vs. ABGSCe and an unusual EBIT lossEurocon reported net sales of SEK 65.3m (66.6), corresponding to a y-o-y decrease of 2%. The deviation from our numbers stems from a lower than expected utilisation rate and six fewer consultants. EBIT amounted to SEK -2.4m (5.2m), and was hurt by the low utilisation rate in conjunction write-downs for three fixed price infrastructure projects. For FY 2019, net sales were SEK 261m (253m), of which SEK 30m were acquisition-related. Based on that, organic growth was -9% for the year; this shows the tough market Eurocon faced in 2019, and particularly in H2. On a positive note, order intake increased at the end of the year and management sees q-o-q utilisation rate improvements over the next couple of quarters.
Negative revisions, likely focus on margin recovery
We have decreased our sales assumptions by 7.9%-7.6% for 2020e-2021e following the report. Even though we expect utilisation rates to increase throughout 2020, Eurocon faces tough comparable in H1. In addition, the coronavirus might have a negative effect on Eurocon’s customers, resulting in delayed investment decisions. The disappointing EBIT margin in Q4 and our negative sales revision also lead to lower assumed EBIT margins going forward. We decrease our EBIT margin assumptions by 1.3pp-1.2pp for ’20e-’21e, resulting in EBIT cuts of 25%-20% for the same period. Overall, we think 2020 will be a year of margin recovery rather than growth.
EV/EBIT valuation above three-year average
On our revised estimates, Eurocon trades at an EV/EBIT of 15.2x for 2020, above its three-year average of 9.6x. Dividend capacity still looks solid, and we have assumed div. yields of 4.1%-6.2% for the coming three years. Eurocon proposed a dividend for 2019 of SEK 0.1 (0.35), which corresponds to a div. yield of ~2% on the current share price.
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