Norva24 Group AB (publ)
STO:NORVA
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
21.9
33.65
|
| Price Target |
|
We'll email you a reminder when the closing price reaches SEK.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
You don't have any saved screeners yet
Welcome to today's call, where we will present the Q1 Results for Norva24. We see a strong quarter for us, strong total growth, strong organic currency, adjusted organic growth and as well margin improvement. So we are again confirming that we are on the right track in regards to our midterm targets and our 2025 targets. So yes, with me today, I have Dean Zuzic, our CFO, as well I have Stein Yndestad, our Chief Corporate Development Officer, and as well as Sture Stolen, Head of Investor Relations, and myself, I am Henrik Damgaard, I'm the CEO of Norva24.As always, I would like to start by just spending 2 minutes with just explaining a little what it is Norva24 is working with. Because often, as modern citizens, we take for granted that when we enter a building, then we have access to water and sewerage. So -- but there is a lot of work undergoing with the infrastructure under the ground that makes all that system work. So -- and what Norva24 is working with is what you can see in this picture is to maintain this infrastructure. So we do the maintenance of the underground infrastructure that makes sure that there is access to water and sewerage in any building in society. So really critical services for the functioning of society.So -- and important to understand, we do the maintenance parts. There are other companies that does the construction and the project parts, that's different mechanisms, and they are good at that. Now what we do is that we do the running maintenance. And there is a lot of running maintenance ongoing with this infrastructure. That's -- that is a little on our industry. So a little around Norva24 and our journey. Actually, this is a very old infrastructure. We consist today of -- some of our companies has more than 100 years of history. So this infrastructure and the industry has been around for long. But our journey as a consolidator and a compounder in this industry started in 2015. And 2015, some Norwegian owners of companies in the industry started to discuss and -- around the possibilities of consolidating the industry. And they engaged on this journey in 2015 together with the private equity fund. And since then, it's really gone fast, and we are today, by far, the biggest operator in the industry in Northern Europe, so -- and have more than 1,600 employees and operations in Germany, Norway, Sweden and Denmark. So yes, so that was a little on the industry.Going a little into then the Q1 results. As I said, it's a strong quarter for us. We see operating revenue going up by 34% to NOK705 million. We also see a solid currency-adjusted organic growth being at 8.5%. So -- and good growth from acquisitions as well, giving us 20%. So it's a strong quarter on the revenue side definitely. So what's important to look into is that we have, as you may know, a 2025 target of reaching NOK4.5 billion in revenue. And just as a rule of thumb, in order to achieve that, we need a revenue increase, a total revenue increase of just around 22% year-on-year from now until 2025. So I think we can all see that the revenue increase we saw in Q1 is well above that. So that's also why I'm saying that we are definitely well on track in regards to achieving that.Looking a little into the profit. Profit increased a bit faster than the revenue, indicating also that the margin went up. We have a 37% increase in the EBIT and an adjusted EBITA margin going up by also 37% to NOK59 million. So the earnings per share up by 60% compared to last year. So yes, a few comments also on the results is that one always have to be aware that Q1 is a quarter where we see a winter effect. When you work with underground infrastructure, it just takes longer time to work when there is snow and winterly weather. So just finding the holes where you have to go into the underground can take more time when there is 0.5 meter of snow or similar conditions.So it's very normal for our industry. But our EBITA margin went -- were 8.4%. That's up from 8.2% in the same quarter last year, and that was 8.1% if we look 2 years back. So a good improvement in the margins. One thing we also want to mention is that we have the taxonomy for the first time in our annual report from last year. We didn't mention that when we announced the Q4 because that's part of our annual report that was announced in April. So -- but it's very good to see also that the green type of our services is also reflected in the way we come out with the -- within the EU taxonomy.Actually, we are having 44% of our services that are defined green services according to the EU taxonomy. So definitely a green service also underlining the importance of the services that Norva24 provide. As I said, we had acquisition growth of 20% in the quarter. It was -- it was actually driven by acquisitions in all markets. We said when we did the IPO in end 2021 that we expected to see acquisitions in all the 4 markets, and that's also what we have delivered on. We have actually done acquisitions in all 4 markets. And therefore, in all 4 markets, there is acquisition growth in the Q1 numbers.So net cash flow also going up, be aware that net cash flow is always -- cash flow is always a bit weaker in the first half of the year and stronger in the second half of the year. So -- but well up from last year -- from -- last year, it was NOK34 million, and this year, it's NOK45 million on the cash flow for the quarter. So also a good improvement there. So looking a little into the countries, I'll come back with more specific details on per country, but it's very good to see Norway and Denmark, both with double-digit growth.And please be aware also that if you look into the Q1 report 2022, there was actually more than 20% currency-adjusted organic growth in Norway. So we are here seeing Norway delivering double-digit growth on top of the growth last year of more than 20%. So a very strong quarter there from the Norwegian organization. So well done. Germany also delivering close to double-digit at 9% and Sweden at 6% currency-adjusted organic growth. So we still -- we see a significant M&A pipeline. So -- and we expect 2023 to be a strong acquisition year. So looking at the acquisitions during the last 12 months, they are adding NOK440 million in revenue. So we've done a significant amount of acquisitions, 7 acquisitions since the start of Q1 last year -- the start of Q2 last year, sorry.Yes. Just showing a little sheet here on the EBITA margin development. As you can see, the EBITA margin development has improved from 8.1% to 8.2% in the Q1 last year, and this year, we are then at 8.4%. So a good improvement year-on-year during that period. So -- and yes. I'll not go further into detail with that. But now also just commenting a little per country. So as I said before, we saw in Norway a very good double-digit growth on top of the more than 20% organic growth that we saw last year. The -- just reminding everyone that what we saw in Q1 2022 was also impacted by postponed assignments from the COVID years, where we saw, particularly in Norway that there was an uplift there in the market.So that was also why Norway had such a high organic growth. So it's very strong for us to see that we're actually able to go 10% above that level this year in the Q1. So it shows really also that almost -- the market we've been in the longest shows really that the strength of the Norva24 model, and that we can really also conquer market shares organically with the way that we operate as a large provider and a professional provider in this market.So yes, noticing also regarding Norway that we have index regulations coming in 1st of January 2023 on public contracts. As you may remember, we did actually index regulate and regulate prices in most contracts during the year 2022. But on most of the public contracts in Norway and some of the public contracts also in Sweden, we see that's being index-regulated on an annual basis. And for Norway, that index regulation is around 10% coming from 1st of January 2023. And the public contracts in Norway are around 30% of the Norwegian revenue.Looking a little into then Germany. It's actually quite interesting to see that Germany and Norway are now almost on the same size. So we are actually seeing a little of an internal battle between Germany and Norway in terms of who first reaches the NOK1 billion revenue, annual LTM revenue targets. So both are above NOK900 million now in LTM revenue. So yes, those markets are actually in the quarter almost at the same level when looking on revenue.Yes, we are seeing a somewhat slightly lower margin in Germany, and that's mainly because of acquisitions coming in with lower margins than what we have, but also a slightly weaker organic margin in Germany in the quarter. So what we've seen during the last year as well in Germany is that we've really strengthened our position in the Berlin area. So Berlin Potsdam area is now the biggest metropolitan area in Norva24. And that's also really where we can see now that we are beginning to benefit from density and increased efficiency by operating smoother together as a large company.Then Sweden, margin up significantly in the quarter. So a strong improvement in the margin in Sweden. So it's coming really from efficiencies and scale, but also actually improved margins in the acquisitions that we've done. So here in Germany, we saw that the acquisitions were reducing somewhat our margin. But in Sweden, we're seeing the opposite picture that actually there we have acquisitions increasing the margin as well. So in combination with better efficiencies and scale benefits and [ title ] density, we are seeing this improvement in the margin in the Swedish market.Denmark really can be said in one sentence. They are continuing to improve and have delivered a very good Q1. And we're really focusing on continuing what we have done regarding the Danish improvement plan. So it's about terminating customer contracts with low margins or negative margins in some cases from the past. So -- but most of them, we have -- we are out of now, so winning new contracts and also working on the whole efficiencies. So in our business, it's really a matter of having high utilization on the equipment and on the personnel. So that's the areas we will continue working on. So -- but when it comes to customer contracts, most of the jobs has been done. So now it's really a lot focusing on improving the efficiency and improving the utilization of the equipment.Yes. With that said, I'll give the word to Dean.
Wonderful. Thank you. Thank you, Henrik. Let me just run you through the numbers, giving -- putting a bit more flavor on what we achieved in Q1. As you've already heard, we delivered a strong organic growth in Q1 and increased margins. Important to mention, as we also have done before, the Q1 is seasonally our weakest quarter. That is due to weather conditions. This year's Q1 is a typical Q1 with a seasonal effect in line with what we have seen in previous year's Q1.As I mentioned, we delivered a strong growth. We have an organic growth of 8.5%, an acquired growth of 19.8%. And if -- and we also need to adjust for a currency effect, which was in the magnitude of 5.6% in Q1 of this year. We do report in NOK and as I'm pretty sure everyone is aware that the NOK did weaken compared to the major other currencies, euro and Swedish krona and the Danish kroner. This brings our total growth up to 34% growth that we are very satisfied with. [ This is ] adjusted EBITA came in at NOK59.4 million, which was up from last year's NOK43.3 million or an increase of 27% (sic) [ 37.2% ].Adjusted EBITA margins up a little bit to 8.4% from 8.2%, also a movement in margins that we are very satisfied with, and it shows that we have been able to offset inflationary pressures that we have seen in the macro economy during Q1 by increasing prices. Even though cash flow is essentially weaker in the first half of the year, also something that we have, I mean, mentioned, is stronger in the second half. We do have an increase in our cash flow in Q1 this year, which came in at -- the operating cash flow came in at NOK45.1 million compared to last year's NOK34.4 million, also a development that we are very satisfied with.Can we take the next slide, Henrik. As you've already heard, as Henrik has mentioned, we have delivered a good quarter with significant improvements on all of our major metrics, healthy revenue growth, healthy growth in EBIT, EBITA and in EBITDA. Revenues, as we've said before, 34% up from NOK526 million to NOK705 million. Our total operating costs have increased by 36%, a bit more than our revenue increase, up to NOK580 million from NOK427 million, but they do include NOK2.4 million of nonrecurring costs this year, composed of NOK1.4 million in M&A costs in Norway and corporate costs related to recruitment of NOK1 million.When we adjust for that, our operating costs are up 33%, which is slightly less that the increase in revenues in 34%, pushing our margins up to 8.4% from 8.2%. Another item that's worth mentioning or putting attention to in our P&L is the relatively favorable increase in our personnel expenses. They increased by 27%, again, compared to a revenue increase of 34%, showing that we have managed to increase efficiencies in the utilization of our own personnel, which we, of course, are very satisfied with too.Net financials improved from minus NOK12 million to minus NOK1 million. The whole increase is a function of net currency gains and a NOK3 million gain on earn-outs from our previous acquisitions. This brings our adjusted EBITA up to [ NOK59 million ] from NOK45 million, increase of 37%. If we look at the last 12, I mean months, they show a revenue increase of 23% and an adjusted EBITA growth of 10%. Margins reduced somewhat from 12% to 11.1%, but all -- but the reductions was explained thoroughly when we presented our Q4 figures last time and year, which are -- which was a relatively weaker quarter than the Q4 in 2022, but we have presented this thoroughly, and this should not be a surprise to anyone.Next slide, Henrik. Our balance sheet, we have a strong balance sheet with significant headroom for continued growth. Net debt of NOK1,303 million in Q1, representing a net debt-to-EBITDA ratio of 2.2x. We have said that we would -- that we target to keep our ratio on our net debt over adjusted EBITDA ratio around 2.5x, but we do have significant headroom following the fact that our -- that the covenants on our bank debt allow us to go to 4x, implying that there is significant headroom if the right acquisition should turn up. We do have the financing strength to do even larger acquisitions.Goodwill, NOK -- was at NOK1,673 million, a slight increase from Q4. We do impairment test, our goodwill and the impairment shows a significant headroom. So we are comfortable with our goodwill level as shown in the balance sheet at the end of Q1. The right-of-use assets amount to NOK830 million. They refer to finance -- to financial leasing of our vehicles and of our property. We have also a PPE of NOK523 million as of March the 31st, refers to vehicles and equipments that have been used in everyday operations. Total lease liability, NOK812 million. Just to mention some of the major, I mean items, they refer to the -- they are connected to the -- I mean, right of -- to the right-of-use assets and noncurrent loans of NOK628 million, primarily only bank loans that have been used in relation to our M&As.So if we take the next slide. We like to put attention on this, when we talk about our net interest-bearing debt figures that do amount to NOK1,303 million. However, 70% of our net debt is related to the lease liabilities that we need to book on our balance sheet following the IFRS 16, the IFRS 16 standard. If we adjust for the leasing, our net debt just showing bank loans minus cash is no more than NOK491 million. We are utilizing NOK570 million of our total debt facility, implying that we do have NOK530 million left for whatever we should need, primarily acquisitions.And that was what I was taught about saying, Henrik.
Thank you. And the word to you, Stein.
Thank you. Just a few words on our M&A. We have a continued strong M&A pipeline as our funnel shows here. Companies moving in and out of that funnel, but the number seems fairly stable, but there are quite a few things happening behind the scenes here. We have done one transaction in Q1, adding close to NOK100 million of revenues in Oslo. And then we also have, in the last 12 months, done 7 transactions with a total revenue of NOK440 million, so slightly more than NOK60 million on average.And we have followed the strategy that we've mentioned earlier and we've strengthened our position in some of the larger markets we're in. So strengthened our position in Berlin and Stockholm and Oslo, and they're increasing the density in those markets, which is just what we want to do. If we look at the next slide, we see the markets where we are today and where we are planning on moving into the future. I think it is very important to state that the 4 markets we're in are and will be our large markets going forward as well.Germany will take by far the lion's share of investment resources in the next coming years. But we have started to look at some other markets in the adjacent geographies to where we are today. And this is just along the line that we communicated in the IPO process and have stated since that. But we have started to familiarize ourselves with some of the other markets. But it is important to say Germany and the current markets will be our focus going forward as well. Thank you.
Yes. Just highlighting again, as I said initially in the beginning of the presentation, we are on the right track in line with our midterm targets and our 2025 revenue targets. So -- and I'm just highlighting here the targets we are aiming for NOK4.5 billion in revenue by 2025. So -- and we have a target in midterm of an adjusted EBITA margin in the range, 14% to 15%. So that's the target we're aiming for, and that's what we are well on track in order to achieve.So -- and what we really want to achieve with the whole Norva24 journey also just highlighting that, what we are building here is a European lighthouse and underground infrastructure maintenance. We want with that to signal 2 things. We want to be the largest player in the European market and European wide. So -- and the second thing we want to illustrate with that is to really say that we want to be that driver and that industry player that the rest of the industry looks upon to see the future direction of the industry. So a bit like a lighthouse that you navigate from. So that's our target, and that's our vision on -- for the future. And as I said, we are well on track, and we're delivering in line with what we said in the IPO.So with that said, we are now opening up for questions and I'll leave it with Sture Stolen to take us through that.
Yes. Thank you, Henrik. We will start with the questions from the phone lines, and then we also will take the questions from the chat. So operator, please go ahead and ask questions on the phone line, please.
[Operator Instructions] The next question comes from Dan Johansson from SEB.
I think I have 4 questions. I'll take them one by one. Is that fine? First one, perhaps a bit on price increases and how much the contribution was in this quarter according to you? I think in Norway, you specified that you have 10% increase on the index contracts, I guess that refers to the public part. So I mean, could you say a bit on how much of that 9% organic growth in the quarter that was driven by prices or anything more on price increases that you could share here?
Yes. I think what we can say is that we did in 2022, we did price increases in the range 4% to 11% on the customer side. So what we -- the customer groups that did not see those price increases during 2022 was mainly the public contracts in Norway and some also public contracts in Sweden. So -- and then there, we have indicated now that they have gotten 10% approximately increase here on 1st of January 2023. So we are within that span 4% to 11% impact in Q1 on the customer side. We've not announced an average on that. So -- but we are in that range what we have done of adjustments last year.
Okay. Perfect. A bit on the margin side as well, overall, a good margin development year-over-year here, basically across the board, apart from Germany, I would say. You mentioned that it's still in the report, you did a lower margin in acquired companies, but also slightly weaker organic margins. Is it possible to say how much of that 3 percentage points drop compared to last year, that's driven by acquisition? Is that the main part of it or, yes, how do you think about that?
Yes. It's the main part that is that. But we have -- as we also wrote in the report, we have seen a slight reduction also in the organic margin in the German market. So that's -- yes. It is like that when we do the acquisitions in Sweden, we saw the opposite effect there, the margins increased due to the acquisitions and that will -- so it can go a little both ways.
Yes. Makes sense. And a bit on the [indiscernible] market as well, it continues to improve here. So I just wanted to ask what's sort of the next step here and the medium-term agenda? Is it sort of possible to reach the same profit level in a few years as in the other geographies or how do you think about Germany now or Denmark now when you have stabilized operations and both seems to be growing quite nicely, but margins are at least at this level now compared to what have been a few years back?
Yes, you're right. We're very satisfied with seeing Denmark progressing so well. So -- and the Danish team has worked -- has done a good job in really improving the Danish operation. So -- and we've not done a guidance in regards to where we see Denmark can -- how large they can go on the margins. What we have those said, and I can also say that today is that when we analyze the Danish market, we cannot see any structures that should justify that the Danish operation should have a lower margin than the other countries.So there's nothing structurally really that justifies that Denmark should have a lower margin. The difference that we see in Denmark, when you look structurally on the market is that the market growth is somewhat lower in Denmark compared to the other markets simply because the pipes are somewhat newer in the Danish market and more has been outsourced of the services that we provide -- so -- in the market. So for these reasons, that's the only reason we -- that's the only difference we see, but nothing that indicates the margin should be lower in the Danish market structure.
Okay. Sounds good. Then last question for me, if I may. I think you previously said that you expect significantly a good acquisition year. Is it still the case or anything changed there? And also, are you seeing any change as to the M&A market now due to higher interest rate and general uncertainty or are the valuation multiples comparable to what you paid here in the past on the pipeline?
Yes. We don't really see any changes on that. And as we've explained earlier, most of the sellers that we are engaging with are not really looking at comparable pricing, interest rates, et cetera. It's more a notion of what is this operation worth, and that's really a very important guide in the pricing that we are seeing. And we don't see any big shifts in valuations or multiples that we are paying these days.
The next question comes from Karl-Johan Bonnevier from DNB Markets.
Yes. Henrik, Dean, Stein, and Sture, great start to the year. A couple of questions from me as well. Looking at CapEx, it seem to be now running at a much higher level than historically. Is that you changing, say, your -- the attraction of leasing compared to owning assets out front or is that just a temporary effect affecting the [indiscernible]?
Answer, we -- I mean there is no structural change in our CapEx. If you're looking at the absolute value of CapEx, there will be -- there is an exchange rate effect in our asset value. So I'm not sure if that maybe creates an impression that it has increased, but our CapEx level has not changed.
And looking at the current interest rate environment, would it make sense for you to look more at owning assets than financing it or leasing, is that still competitive?
I don't know if you -- or if I should. I mean, from my standpoint, I would say -- I mean, no, we have favorable, I mean terms. Of course, we do our mathematics on, I mean, this also. And if it should make sense to own, we might consider that, but from the offers that we have received until now, that has not been the case.
Exactly.
Yes.
Because when I, for the moment, look at your cash EBITDA, it's running quite -- it's about 200 basis points below the adjusted EBITDA. And is there any reason why that should continue or is that also just a temporary effect?
That I would say that that's a temporary effect. There are no, I mean, structural changes that would justify a long-term change.
So given that, you would basically conclude that the NOK530 million you have in non-utilized financial headroom for the moment, that's -- there's no reason to believe that that's going to be, say, more directed into the current operation to, say, refinance that from a financing model and it's really assets that or resources that can be used for acquisitions?
That is correct.
Yes. Yes.
Okay. I think that sums up the questions from the phone line. There's no change -- no more questions from there. Let me just check the chat, seems to be no questions on the chat. So I hand over to Henrik for the closing remarks.
Thanks a lot, Sture. So just concluding again that we are on the right track, achieving our midterm targets and we are delivering in line with what we said in the IPO. So we are -- I'm getting signals that there is a question or...
Do we have a question? Okay. We'll take that. Please go ahead with the question please.
Please state your name and company.
This is Avinash from Citi. I think there's some problem with the line, I raised my hand a long back. And I'm very sorry if some of these -- some of the questions were already answered. I just got disconnected for a moment. My first question is on Germany. Is it safe to assume that Germany is back to normalcy with the kind of organic growth reported in the quarter and all the disruptions you saw last year with that hurdles related to COVID? And again, on Germany, Germany margin is at its lowest since the -- since you entered the German market. And is the new acquisitions the only factor driving them down? Could you provide me a normalized range where they would stable going forward?
Yes. Thanks for the question. So looking a little on the general growth in Germany, so it's correct that we saw a somewhat lower organic -- currency-adjusted organic growth in second half year last year in the German market. But pay attention to that, that was on the back of a very strong organic growth in the second half of 2021. There, we had around 20% in currency-adjusted organic growth in the German market. So that was the reason why you saw somewhat weaker organic growth in the second half year in Germany.So what we see is a good growth in the German market, 9% here in Q1. So we see definitely a good start of the year in the German market on the organic growth. So -- and look, you're commenting then a little on the German margin. So it's mainly impacted by margins in acquired companies. So we see in the German market that it's impacting us negatively on the margin. So while in Sweden, it's impacting us positively where the margins are higher in the acquired companies. So -- and then we have correctly seen a slightly lower margin in the quarter also organically. So that's a bit the situation in the German market.
Okay. And in terms of normalized range, where they -- where do you see these would settle down the margins, German margins?
Well, we see a decent margin or...
Can you repeat, Avinash?
Okay.
The line was a little weak on our side, I think.
Next is on the Danish -- I'm sorry, the line is not very clear. But, yes, next is on Denmark. Denmark, you reported a strong organic growth of 10%, a double-digit organic growth almost. And you are also saying that you are cutting down on your contracts which are below margins. So does that mean that you are able to penetrate the Danish market pretty well now versus before?
Yes, we have definitely seen a strengthening in the -- our Danish performance, both in terms of the growth as well as on the margin. So I would say in regards to us having terminated the unprofitable contracts that most of that job has been done. So we are seeing now also growth in the light of that. So -- but there is still good improvement areas in Denmark. They are continuing to improve and doing the, yes -- doing the plan that we have set for the Danish market. So -- and then what will be the biggest focus areas will be increased efficiencies, increased utilization in the -- in order to improve the margin further.
Okay. My last one is on the CEO transition. I'm sorry, it is very disheartening to see Henrik leaving the firm. Could you also provide me an update on this transition as to the CEO look out, please, new CEO look out?
Yes, yes. I can say that the -- as far as I understand, the process is progressing well, and it's the Board running the process of recruiting a new CEO. So the process is progressing well on the recruitment of a new CEO.
Okay. And the estimated time line when you think you would be able to close that down and announce?
Unfortunately, I'm not able to answer that. So -- but what I can say is that it has high attention, of course, from the Board, and there is good progress on that process. So yes, I think that's what I can say today.
Okay. No problem. All the best.
I think we have no more questions on the phone. And we had one question on the chat that has already been answered. So I think with that, we will conclude this presentation. Thank you.