Very well liked although not preferred...

Transcription

1 Very well liked although not preferred... AF GRUPPEN 2Q15 PREVIEW Recommendation: BUY Target NOK Prepared by Analyst: Daniel Johansson, Fondsfinans AS, tel: , This report was prepared by an analyst engaged by Fondsfinans AS, the Norwegian affiliate of Fondsfinans Inc., who is not registered as a research analyst with FINRA or subject to FINRA rules governing research. This report is not a product of Fondsfinans Inc. See page 12 of this report for Important Disclosure Information. 1

2 Story on basically intact but we find better value elsewhere INVESTMENT CASE 2Q a solid quarter, focus increasingly on margins, orders and outlook - We forecast a 24% growth incl. M&A (LAB AS) and amid better execution q-o-q - Pre-tax is estimated up 27% but with Civil and Building mgns. falling y-o-y - Construction mgns., few large 2Q Civil orders and outlook the question marks Story largely intact but risk somewhat up on Norway macro risk - Changes to E est s -1% on pre-tax, we are now in line with consensus - We still expect a E 12% top line CAGR and a 16% pre-tax CAGR - Macros, Building exposure the risks - infra, decommissioning yields potential We much like AF stand alone but have a preference for peer Veidekke - A well-run franchise with a solid track record, supported by structural factors - EV/EBIT 9% above Veidekke with greater risk, margin deltas in opposite direction - Shares come with a 15% (16%) upside to the NOK 119 tgt., Veidekke with 20% 2

3 Backlog at highs at end-1q, but no help from large orders LARGE ORDER LIST Order/contract overview (NOKm) Period Item/Description Segment* Value** Duration Comment 2Q14 Building of officebuilding in Drammen, Union Eiendom Building 188 2Q14-4Q15 2Q14 Building of nursing home in Buskerud, Øvre Eiker kommune Building 119 2Q14-1Q16 2Q14 Railw ay tunneling w ork - Follobanen Åsland, Jernbaneverket Civil 250 2Q14-2Q15 2Q14 Building of w arehouse in Akershus, ASKO Building 322 3Q14-1Q17 2Q14 Building of officebuilding in Drammen, Papirbredden Eiendom Building 153 3Q14-3Q15 2Q14 Building of officebuilding in Hasle (Oslo), Höegh Eiendom Building 294 2Q14-2Q16 2Q14 Total announced 1,326 3Q14 Decommision LOI (EPRD) for platform on the UKCS, CNR Int'l (UK) Offshore n/a 1Q Letter of intent 3Q14 Decommision contract for platform on the UKCS, CNR Int'l (UK) Offshore 700 1Q16-3Q14 Removal and reconstruction of gas plant anchor blocks on Korstø, Statoil Civil 80 3Q14-1Q16 3Q14 Building of commercial property in Gothenburg, Älvstranden Utveckling (Sw eden) Building 81 1Q15- SEK 90m value 3Q14 Total announced 861 4Q14 Building of 124 flats etc. in Sørenga (Oslo), Sørenga Utvikling Building 448 3Q15-1Q17 4Q14 Total announced 448 1Q15 Construction of dam and intake etc. for pow er station in Ringedalen, Statkraft Civil 130 2Q Q15 Building of commercial property etc. in Ås, Møller Bil Building 106 1Q15-1Q16 1Q15 Building of 131 flats etc. in Kvæernerbyen (Oslo), OBOS Kvaernerbyen Building 232 2Q15-2Q17 1Q15 Building of 32 flats etc. in Jæren, Jæren Hotell Eiendom Building months No start date 1Q15 Upgrading/rebuilding of Østensjø metro line in Oslo, Oslo Tramw ays Civil 378 2Q15-1Q16 1Q15 Building of 90 flats etc. in Lørenskog (Oslo), Nordliveien Utbygging KS Building 151 3Q15-1Q17 1Q15 Construction, maintenance and services contract on Svalbard, SNSG Civil 250 3Q15-3Q18 Extension 1Q15 Total announced 1,382 2Q15 Building of 172 flats etc. in Lillestrøm, Lillestrøm By og Næringsutvikling Building 397 3Q15-4Q17 2Q15 Principal contract for energy supply installation at Bergen Airport, Avinor Energy 81 2Q15-4Q16 initial order 2Q15 5 year fame agreement for HVAC on NCS (J. Sverdrup field), Statoil Offshore 250 2Q15-2Q20 Excl. options 2Q15 Construction of tunnels for the Follo Line railw ay, AGJV Civil 350 2Q15-2Q16 2Q15 Building/extension of nursing home in Drøbak, Frogn Municipality Building 226 2Q15-1Q16 2Q15 Total announced 1,304 *Excludes landbank acqusitions, i.e. list only/mainly applies to Civil Engineering, Building and Offshore segments' orders/contracts **Excl. VAT. Contract values confirmed over NOK 100m reported to Oslo Boers Source(s): AF Gruppen, Fondsfinans research 3

4 Pre-tax somewhat down on Civil mgns., M&A integration ESTIMATES CHANGES Group and segment pre-tax estimates changes Estimates 2015E 2016E 2017E Change % changes (NOKm) Curr. Prev. Curr. Prev. Curr. Prev Revenues 11,926 11,720 13,290 13,082 14,056 13,803 2 % 2 % 2 % EBITDA % -1 % -1 % EBIT % -1 % -1 % Pre-tax profit % -1 % -1 % EPS, rep % -1 % -1 % EPS, adj % -1 % -1 % Estimates changes Curr. Prev. Curr. Prev. Curr. Prev. % % % Pre-tax (NOKm) 2015E 2015E 2016E 2016E 2017E 2017E 2015E 2016E 2017E Civil Engineering % -7 % -7 % Building % -7 % -7 % Property % 0 % 0 % Environment % 11 % 11 % Energy % 98 % 93 % Offshore % 127 % 128 % Other incl. IFRIC % 0 % 0 % Total pre-tax profit % -1 % -1 % Source(s): AF Gruppen, Fondsfinans research 4

5 and we are now more or less in line with the market ESTIMATES CONSENSUS Fondsfinans vs. Bloomberg consensus Estimates vs. 2015E 2016E FF vs. BB Consensus (Bloomberg)* FF Cons. FF Cons. 2015E 2016E Revenues 11,926 12,077 13,290 13,292-1 % 0 % Revenue growth 20.0 % 21.6 % 11.4 % 11.5 % -1.5 p.p. 0 p.p. EBITDA ,062 1,052 3 % 1 % EBITDA margin 8.0 % 7.7 % 8.0 % 7.9 % 0.3 p.p. 0.1 p.p. EBIT % -1 % EBIT margin (%) 7.0 % 6.9 % 7.0 % 7.1 % 0.1 p.p. 0 p.p. Pre-tax profit % -1 % Pre-tax margin 6.9 % 6.9 % 7.0 % 7.0 % 0.1 p.p. 0 p.p. Net profit % 8 % EPS, rep % 6 % *Note: EPS inconclusive as number of shares differ. 2017E excluded on few participants 2Q15E (NOKm)* FF BB Diff., % Revenues 3,192 3, % Revenue Growth 24.3 % 24.3 % EBITDA % EBITDA margin 7.1 % 7.0 % EBIT % EBIT margin 6.1 % 3.8 % Pre-tax pofit % Pre-tax margin 6.1 % 4.0 % Net income % EPS reported** % * Note: only three participants in Bloomberg *Note: EPS is post share issue Source(s): AF Gruppen, Bloomberg, Fondsfinans research 5

6 Pricing close to record highs, slightly higher than Veidekke* PRICING ABSOLUTE AND RELATIVE Historical 1 yr. fwd EV/EBIT Peer E EV/EBIT s year fwd. EV/EBIT Average EV/EBIT 2015E EV/EBIT 2016E Absolute valuation a bit streched - No drama, mirroring peer multiples - Re-rating fair but no further upside - Cheaper on P/E (a less good metric) Relatively attractive vs. wider peers - AF mgns. the best but returns in line - A riskier business model right now - Veidekke appears more attractive Source(s): Bloomberg, Fondsfinans research Source(s): Bloomberg, Fondsfinans research. *For E 6

7 Lower est s yield an unchanged price target at NOK 119 VALUATION DCF, PEER P/E-EV/EBIT MULTIPLES DCF: NOK +4.0, P/E: -2,0, EV/EBIT: Source(s): AF Gruppen, Bloomberg, Fondsfinans research 7

8 In sum: We like AF but prefer peer Veidekke near term CASE - SUMMARY Key Figures (NOKm) E 2016E 2017E 2Q14 2Q15E Revenues 9,831 10,127 9,935 11,926 13,290 14,056 2,567 3,192 EBITDA ,062 1, EBIT Pre-tax profit EPS, rep EPS, adj Op.CF / Share (Op.CF - Capex) / Share Revenue grow th 33.6 % 3.0 % -1.9 % 20.0 % 11.4 % 5.8 % -5.2 % 24.3 % "Construction" margins 1.8 % 5.5 % 7.2 % 7.2 % 7.1 % 7.1 % 5.6 % 5.2 % EBIT margin 3.3 % 5.6 % 6.4 % 7.0 % 7.0 % 6.9 % 5.7 % 6.1 % Pre tax margin 3.2 % 5.7 % 6.3 % 6.9 % 7.0 % 6.9 % 6.0 % 6.1 % DPS Dividend yield 9.2 % 7.3 % 9.6 % 6.9 % 8.2 % 9.6 % EV/EBIT P/E, adj P/B ROE 18 % 36 % 34 % 35 % 33 % 33 % ROCE 18 % 31 % 33 % 29 % 33 % 35 % NIBD/EBITDA Focus on execution and backlog/outlook for 2Q - Norway macro risks, larger orders lagging Long term growth case intact as with Veidekke - Civil, Energy, Offshore more solid than Building BUY reiterated, price target at NOK Veidekke preferred on order intake, mgn. delta 8

9 Accounts summary SUMMARY GROUP P&L E 2016E 2017E 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15E 3Q15E 4Q15E Revenues 9,831 10,127 9,935 11,926 13,290 14,056 2,376 2,708 2,534 2,508 2,295 2,567 2,343 2,730 2,534 3,192 2,934 3,266 Revenue grow th (YoY) 34 % 3 % -2 % 20 % 11 % 6 % 3 % 8 % 10 % -7 % -3 % -5 % -8 % 9 % 10 % 24 % 25 % 20 % EBITDA ,062 1, EBITDA margin (%) 4 % 7 % 8 % 8 % 8 % 8 % 5 % 6 % 7 % 9 % 5 % 7 % 8 % 10 % 6 % 7 % 8 % 10 % EBIT EBIT margin (%) 3 % 6 % 6 % 7 % 7 % 7 % 4 % 5 % 6 % 8 % 4 % 6 % 7 % 9 % 5 % 6 % 7 % 9 % Pre-tax profit Pre-tax margin (%) 3 % 6 % 6 % 7 % 7 % 7 % 4 % 5 % 6 % 8 % 4 % 6 % 7 % 8 % 5 % 6 % 7 % 9 % Net profit Net margin (%) 2 % 4 % 5 % 5 % 5 % 5 % 3 % 3 % 4 % 7 % 3 % 5 % 6 % 6 % 4 % 4 % 5 % 6 % Balance E 2016E 2017E 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15E 3Q15E 4Q15E Cash and cash equivalents Other current assets 2,660 2,411 2,430 3,369 3,623 3,792 2,997 2,595 2,697 2,411 2,336 2,634 2,506 2,430 2,554 3,298 3,051 3,369 Property, plant & equipment ,074 1,076 1, ,075 1,072 1,073 1,074 Other non-current assets 1,575 1,734 1,915 2,624 2,624 2,624 1,614 1,617 1,666 1,734 1,736 1,750 1,860 1,915 2,624 2,624 2,624 2,624 Total assets 4,941 5,237 5,428 7,493 7,799 7,930 5,133 4,733 4,991 5,237 5,401 5,291 5,388 5,428 6,629 7,087 6,901 7,493 Short-term interest bearing liabilities Long-term interest bearing debt Other short-term liabilities 3,056 3,369 3,273 4,579 4,910 5,127 3,189 3,013 3,264 3,369 3,131 3,365 3,365 3,273 3,981 4,463 4,156 4,579 Other long-term liabilities Total liabilites 3,723 3,902 3,929 5,588 5,798 5,896 3,862 3,736 3,872 3,902 3,770 4,091 4,080 3,929 4,750 5,531 5,194 5,588 Equity 1,218 1,335 1,499 1,905 2,001 2,034 1, ,119 1,335 1,632 1,200 1,308 1,499 1,879 1,557 1,707 1,905 Equity share (%) 25 % 25 % 28 % 25 % 26 % 26 % 25 % 21 % 22 % 25 % 30 % 23 % 24 % 28 % 28 % 22 % 25 % 25 % NIBD Cash flow E 2016E 2017E 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15E 3Q15E 4Q15E Cash earnings Operating cash flow 194 1, Net CAPEX Free cash flow after investments Net debt repayments Equity issue / dividends Net cash flow

10 We rate AFG as MEDIUM risk RISK ASSESSMENT External: - Economic risks: AF Gruppen s housing building/property business is highly dependent on macro variables such as consumer confidence, GDP growth, house prices, inflation, interest rates, personal debt ratios and unemployment, factors which may fluctuate substantially over time. The length of the construction processes along with timing of projects may therefore impact earnings materially - Political risks: Taxation of housing is a key item potentially impacting AF Gruppen. The company is also active in infrastructure activity in Norway (and Sweden) that often follow political budgets and spending cycles, therefore adding extra risk Internal: - Contract/project risk: AF Gruppen enters contracts and starts projects with limited balance sheet risk where possible but history shows that miscalculations and extraordinary events may severely impact margins, that may be squeezed due to tendering. We argue that AF Gruppen tries to lower balance sheet risk and start projects very selectively on basis of secure funding and/or pre-sales activity - HSE: as a construction company AF Gruppen s activities involve potential health, safety and environmental risks. Severe incidents, e.g. accidents and contamination, could impact AF Gruppen s liability payments (one-offs), project costs/margins and not least future contract wins 10

11 Share information KEY DATA Share data Shareholders Share Data Sector: Constr. Bloomberg Tickers AFG.NO Risk Rating MEDIUM Outstanding Shares (m) 92 Market Cap (m) 9,088 Net Interest Bearing Debt (m) 457 Enterprise Value (m) 9,546 Free Float 27 % Average Volume ('000) 2,155 High / Low 52w / 68.5 Weight OSEAX 0.51 % Rel. Perf 3 / 6 / 12-5 / 19 / 47 Abs. Perf. 3 / 6 / 12-6 / 17 / largest shareholders Name No. shares % Obos Bbl % Ømf Holding As % Constructio As % Aspelin-Ramm Gruppen As % Ljm A/S % Vito Kongsvinger As % Skogheim Arne % Stenshagen Invest As % Staavi Bjørn % Handelsbanken Asset Mgmt % Total 10 largest % Others % Total % Source(s): AF Gruppen, Bloomberg, Fondsfinans research Source(s) AF Gruppen, Bloomberg, Oslo Boers, Fondsfinans research 11

12 Definitions of ratings Buy Low risk: with a potential of min 5%. Medium risk: with a potential of min 10%. High risk: with a potential of min 20%. Neutral Low risk: -5% to +5%. Medium risk: -10% to +10%. High risk: -20% to +20%. Sell Low risk: min -5%. Medium risk: min -10%. High risk: min -20%. Risk ratings are based on price volatility, fundamental criteria and perceived risk. Ratings are: Low (L), Medium (M) and High (H). Target: Our valuation as of today. Time frame of target: Target is what we value the share as of today. Recommendation distribution as of : Companies in each recommendation category that have been investment banking clients over the past 12 months: Recommendation No Percent Recommendation No Percent Buy % Buy 2 5 % Neutral % Neutral 1 10 % Sell % Sell 0 0 % Total % Total 3 Our intention is to issue preview and update research on a quarterly basis. Our investment recommendation is elaborated in accordance with The Norwegian Securities Dealers Associations standards. This report has not been sent to the company for correction of any factual errors. Fondsfinans is organized with Chinese walls between the Corporate Department and the Research/Broking Department. In addition, Fondsfinans has internal instructions and guidelines for handling sensitive information. The analyst receives compensation that is impacted by overall firm profitability, including investment banking activities. Fondsfinans is under supervision of The Financial Supervisory Authority of Norway. The recommendation has not been changed from BUY. The previous recommendation was issued Ownership per in AF-Gruppen ASA: Analyst (including his/her closely related persons or companies): 0, corresponding to 0% of the company share capital Employees (including their respective closely related persons or companies): 0, corresponding to 0% of the company share capital Group Fondsfinans (including the holdings of its Chairman, his spouse and their closely related companies, Erik Must AS and its 100% controlled subsidiaries): 0, corresponding to 0% of the company share capital Fondsfinans may hold shares in AF-Gruppen ASA as a result of daily trading/market making. Information on such holdings is not given when of non-significant value. Fondsfinans does not act as market maker in AF-Gruppen ASA. Fondsfinans has not acted as corporate adviser, lead manager in IPO etc. during the past 12 months. 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