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Research: Industrials
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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Daldrup & Söhne |
Favourable growth outlook
Alternative energy |
Scale research report - Update
17 October 2018 |
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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.
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Historical figures and consensus estimates
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) |
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Source: Daldrup & Söhne
Exhibit 2: Comparable valuation analysis
P/E (x) |
EV/sales (x) |
EV/EBIT (x) |
|||||
2018 |
2019 |
2018 |
2019 |
2018 |
2019 |
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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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