Daldrup & Soehne — Favourable growth outlook

Daldrup & Söhne (DB: 4DS)

Last close As at 22/04/2024

5.85

0.00 (0.00%)

Market capitalisation

36m

More on this equity

Research: Industrials

Daldrup & Soehne — Favourable growth outlook

Daldrup & Söhne (D&S) continues to increase its presence in geothermal generation and was recently awarded a new drilling concession for the Neuried claim. The order book remains strong and the macro environment is positive in our view. Daldrup & Söhne is on track to meet FY18 management guidance and we believe further growth is likely in the coming years.

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Industrials

Daldrup & Söhne

Favourable growth outlook

Alternative energy

Scale research report - Update

17 October 2018

Price

€9.25

Market cap

€56m

Share price graph

Share details

Code

4DS

Listing

Deutsche Börse Scale

Shares in issue

6.0m

Last reported net debt as at June 2018

€9.2 m

Business description

Daldrup & Söhne is an onshore drilling and environmental services company, with competencies in geothermal projects from feasibility through permitting and construction to supply contracting. The company is about to establish a predictable revenue stream with two plants already producing geothermal energy.

Bull

Emission reduction and renewable energy targets provide a helpful macro environment.

Favourable feed-in-tariffs in Germany for geothermal energy.

Increased focus on operational plant should reduce financial volatility.

Bear

Investment in geothermal energy is likely to increase the capital intensity of the business.

The time frame for the development of geothermal energy projects is longer than for some other renewable technologies.

Analyst

Graeme Moyse

+44 (0)20 3077 5700

Daldrup & Söhne (D&S) continues to increase its presence in geothermal generation and was recently awarded a new drilling concession for the Neuried claim. The order book remains strong and the macro environment is positive in our view. Daldrup & Söhne is on track to meet FY18 management guidance and we believe further growth is likely in the coming years.

H118 results on track to meet FY18 guidance

H1 results from Daldrup & Söhne showed total output of €22.0m (H117: €22.8m), but EBITDA rose by 34.8%, from €2.3m in H117 to €3.1m in H118. Other operating income, generated by provision reversals and sale of fixed assets, rose by c €0.8m to c €1m and accounted for the majority of the rise in EBITDA. EBIT increased by €0.7m to €1.2m in H118, generating an EBIT margin of 5.5%. H118 operating cash flow was positive and, overall, Daldrup & Söhne appears well on track to meet management guidance for the year of revenue of at least €40m and an EBIT margin of 2–5%.

Outlook continues to appear promising

The outlook for renewable energy, including geothermal, remains attractive as countries strive to limit their greenhouse gas emissions and comply with international targets. Positively, Daldrup & Söhne was recently awarded a new drilling concession for the Neuried claim. The order book remains healthy, with €63m of outstanding orders at the drilling services business. The prospect of potential order backlogs resulting from the project pipeline in the coming years also increases the management board’s confidence. D&S should continue to benefit from production at Taufkirchen (group-level share 55%), which commenced in H1, and a further ramp-up of output at Landau (group-level share 67%).

Valuation: EV/sales multiple discount to peer group

Given the narrowly based consensus forecast available on Bloomberg, we use management guidance (revenue of at least €40m and an EBIT margin of 2–5%) as a basis for our valuation analysis. At current levels of c €10/share, D&S is trading on an EV/sales multiple of 1.7x (based on €40m revenue) and 1.5x (based on €45m revenue). The EV/EBIT multiple remains c 30x (based on 5% EBIT margin and revenue of c €45m). Based on EV/sales, Daldrup & Söhne is trading broadly in line with the wider market and at a discount to a group of selected peers. The EV/EBIT multiple remains at a premium to its peer group.

Historical figures and consensus estimates

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/17

24.8

0.02

0.004

0.0

N/A

N/A

12/18e

31.4

0.55

0.050

0.0

185

N/A

Source: Bloomberg

Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.

Interim results and valuation

Exhibit 1: H118 results vs H117

€m

H117

H118

H118 vs H117

Sales

5.5

17.1

211%

Increase in WIP

17.3

4.9

-72%

Output

22.8

22.0

-3%

EBITDA

2.3

3.1

35%

EBIT

0.5

1.2

140%

EBIT margin (%)

2.2%

5.5%

 

PBT

0.17

0.15

-13%

Net profits

0.17

0.11

-36%

EPS (€)

0.03

0.02

-33%

Cash flow from operating activities

(1.102)

35.915

 

Cash flow from investing activities

0.101

(61.045)

 

Cash flow from financing activities

0.612

2.553

 

Change in cash

(0.389)

(22.577)

 

Source: Daldrup & Söhne

Exhibit 2: Comparable valuation analysis

P/E (x)

EV/sales (x)

EV/EBIT (x)

2018

2019

2018

2019

2018

2019

DJ STOXX 600

SXXP

14.3

13

1.6

1.5

N/A

N/A

Drilling & renewable companies

 

 

 

 

 

 

 

Odfjell Drilling

ODL NO

154.8

18.4

2.9

2.5

27.1

15.2

7C Solarparken

HRPK GY

27.6

25.0

8.3

8.0

24.0

22.8

Energy Development Corporation

EDC PM

14.5

12.0

5.2

4.8

13.2

11.7

Enrgiekontor

EKT GY

33.9

10.6

3.2

1.6

14.5

7.6

Good Energy

GOOD LN

14.9

12.8

0.6

0.6

 

 

Ormat Technology

ORA US

22.9

22.2

5.5

5.2

19.1

15.9

Polish Energy Partners

PEP PW

 

22.9

0.6

0.6

29.4

15.9

Average

 

44.8

17.7

3.8

3.3

21.2

14.9

Source: Bloomberg. Note: Prices as at 10 October 2018.

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Schumannstrasse 34b

60325 Frankfurt

Germany

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London, WC1V 7EE

United Kingdom

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US

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NSW 2000, Australia

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