Last close As at 05/08/2026
—
— 0.00 (0.00%)
Market capitalisation
—
Research: Industrials
Following H1 results highlighting delays in the UK commercial development, we have reduced our forecasts to reflect our assumption of a one-year delay in the revenue ramp-up for Orège. An acceleration of revenue growth would be the main catalyst for a potential rerating.
Written by
Orège |
UK commercial delays affect 2019 sales |
H1 results |
General industrials |
11 October 2019 |
Share price performance
Business description
Next events
Analyst
Orège is a research client of Edison Investment Research Limited |
|||||||||||||||||||||||||||||||||||||||||||||
Following H1 results highlighting delays in the UK commercial development, we have reduced our forecasts to reflect our assumption of a one-year delay in the revenue ramp-up for Orège. An acceleration of revenue growth would be the main catalyst for a potential rerating.
Year end |
Revenues |
EBITDA |
EBIT |
Net income |
EV/sales |
12/17 |
0.4 |
(10.1) |
(11.5) |
(13.6) |
128.2 |
12/18 |
2.3 |
(7.7) |
(8.5) |
(10.9) |
26.9 |
12/19e |
3.0 |
(7.6) |
(8.4) |
(10.8) |
29.6 |
12/20e |
6.0 |
(6.4) |
(7.2) |
(8.3) |
14.8 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
UK commercial delays affect 2019 revenues
At its H1 results Orège reported €0.1m revenues (vs €0.9m in H118) and warned that uncertainties around Brexit and the fact that several UK water utilities have seen their five-year plans delayed by the regulator, Ofwat, will result in delays to the negotiations for the sale of new solid, liquid, gas (SLG) units, with a larger than earlier expected impact on 2019 revenues. Orège estimates a €3m turnover for the contracts under execution, which the company expects to book mostly in Q419. Earlier in the summer, Orège announced that €39.6m were subscribed in its rights issue (€33.9m through the conversion of a receivable by Eren Industries and €5.7m in cash), which will be used to strengthen its balance sheet and accelerate commercial development in strategic growth countries (the US, UK, Germany and Japan) and the development of new waste to energy solutions.
Revenue ramp-up delayed by one year
We cut our forecasts to reflect the reduced 2019 outlook provided by the company. As a result of the commercial delays in the UK, a key market for Orège, and as 2019 revenues are likely to be around half of what we previously expected, we have delayed the revenue ramp up we include in our forecasts by one year. We assume an increased focus on cost-cutting through a slower increase in costs in FY19 to FY21 and now expect EBITDA to roughly break even in FY22 (vs FY21 previously) and positive cash flow in FY23 (vs FY22 before). In addition to the earnings reductions, we have updated our forecasts to reflect the increase in the number of shares following the July capital increase. We estimate the capital increase will drastically reduce net debt to €15.6m at end FY19 (vs our previous forecast of €55.4m). We forecast available liquidity of c €5m at the end of 2019.
Valuation: Growth delivery is key catalyst for rerating
For the share price to recover after the recent decline, we believe delivering growth is required as a catalyst. Based on our forecasts and a 12.5% WACC (consistent with the rate we use for companies at a similar stage of development), the current share price implies five years of growth in line with our assumptions but only inflationary growth thereafter. Mature water equipment companies trade on 2x EV/sales for FY19. Based on the current share price and our forecasts, Orège trades on around the same multiple in FY23.
UK commercial delays impact 2019 revenues
At its H1 results Orège:
■
Reported €0.1m revenues (vs €0.9m in H118), EBIT loss of €4.9m (vs a loss of €4.4m in H118) and a net loss of €6.5m (vs €5.5m in H118).
■
Warned that uncertainties around Brexit and that several UK water utilities have seen their five-year plans delayed by the regulator, Ofwat, will result in delays to the negotiations for the sale of new SLG units, with a larger than expected impact on revenues for 2019. Orège remains confident about the potential of the UK market and continues negotiations with several UK water utilities.
■
Said that one UK water utility has not retained Orège’s proposal for a lorry-carried thickening solution.
■
Said it estimates a €3m turnover for the nine contracts under execution in other five countries, which the company expects to book mostly in Q419. Orège expects to deploy its first projects in Japan, Spain and Italy in H2.
€39.6m capital increase completed in July
In July 2019 Orège announced the results of its rights issue, with €39.6m shares subscribed (€33.9m through the conversion of a receivable by Eren Industries and €5.7m in cash), which will be used to strengthen its balance sheet and accelerate commercial development. In particular, Orège said the funds will be used to finance commercial development in strategic growth countries (the US, UK, Germany and Japan) and the development of new waste to energy solutions.
News of a capital increase was expected as there was a legal requirement to recapitalise the company before the end of 2019. As a result of the capital raise, Eren Industries increased its stake in Orège to 79.5% (from 69% before).
|
Exhibit 1: New shareholding structure post capital raise (% of capital) |
|
|
Source: Company data |
The capital increase will drastically reduce net debt to €15.6m (Edison estimate) at the end of FY19, which compares to our previous forecast of €55.4m. The €5.7m cash raised adds to the undrawn shareholder current account facility of €3.3m at 30 June 2019. We expect the c €9m total available liquidity in July 2019 to reduce to c €5m at the end of 2019.
Forecasts reduced
We have cut our forecasts for 2019 to reflect the new outlook provided by the company. As a result of the commercial delays in the UK, a key market for Orège, and as 2019 revenues are likely to be around half of what we previously expected, we have delayed the significant revenue ramp up we include in our forecasts by one year. We assume increased focus on cost cutting, resulting in a slower increase in costs in FY19 to FY21, which, however, have little impact on the bottom line when compared to the effect of reduced revenues. We now expect EBITDA to roughly break even in FY22 (vs FY21 previously) and positive cash flow in FY23 (vs FY22 before).
In addition to the revenue and earnings reductions, we have updated our forecasts to reflect the increase in the number of shares following the recent capital increase. We reduce financial expenses significantly to reflect the smaller debt burden.
Exhibit 2: Forecast changes
€000s |
FY18 |
FY19e |
FY20e |
|
Revenues |
NEW |
2,260 |
3,005 |
6,027 |
OLD |
2,260 |
6,281 |
11,007 |
|
% change |
0% |
-52% |
-45% |
|
EBITDA |
NEW |
-7,749 |
-7,630 |
-6,442 |
OLD |
-7,749 |
-5,943 |
-3,802 |
|
% change |
0% |
28% |
69% |
|
EBIT |
NEW |
-8,537 |
-8,430 |
-7,242 |
OLD |
-8,537 |
-6,743 |
-4,602 |
|
% change |
0% |
25% |
57% |
|
Net Income |
NEW |
-10,915 |
-10,796 |
-8,335 |
OLD |
-10,915 |
-9,849 |
-8,477 |
|
% change |
0% |
10% |
-2% |
|
Net debt |
NEW |
44,449 |
15,620 |
23,875 |
OLD |
44,382 |
55,350 |
65,219 |
|
% change |
0% |
-72% |
-63% |
Source: Company data, Edison Investment Research
Growth delivery is key catalyst for potential rerating
As Orège is at an early stage of commercial development there is significant uncertainty over its valuation, which is reflected in the recent share price volatility. For the share price to recover, we believe delivering growth is required as a catalyst. Based on our current forecasts and a 12.5% WACC (consistent with the rate we use for companies at a similar stage of development), the current share price implies five years of growth in line with our assumptions (€58m revenues in FY24) but only inflationary growth thereafter. Mature water equipment companies trade on 2x EV/sales for FY19. Based on the current share price and our forecasts, Orège trades on around the same multiple in FY23.
Exhibit 2: Financial summary
Accounts: IFRS, Yr end: December, EUR: Thousands |
2016 |
2017 |
2018 |
2019e |
2020e |
Income statement |
|
|
|
|
|
Total revenues |
703 |
387 |
2,260 |
3,005 |
6,027 |
Cost of sales |
(1,568) |
(597) |
(600) |
(1,114) |
(2,849) |
Gross profit |
(865) |
(210) |
1,660 |
1,891 |
3,178 |
SG&A (expenses) |
(14,103) |
(9,858) |
(9,409) |
(9,521) |
(9,620) |
Depreciation and amortisation |
(2,241) |
(1,417) |
(788) |
(800) |
(800) |
Reported EBIT |
(17,209) |
(11,485) |
(8,537) |
(8,430) |
(7,242) |
Finance income/(expense) |
(822) |
(1,739) |
(2,378) |
(2,366) |
(1,093) |
Other income/(expense) |
168 |
(411) |
0 |
0 |
0 |
Exceptionals and adjustments |
0 |
0 |
0 |
0 |
0 |
Reported PBT |
(17,864) |
(13,635) |
(10,915) |
(10,796) |
(8,335) |
Income tax expense (includes exceptionals) |
114 |
0 |
0 |
0 |
0 |
Reported net income |
(17,750) |
(13,635) |
(10,915) |
(10,796) |
(8,335) |
Basic average number of shares, m |
18.7 |
18.7 |
18.7 |
34.6 |
50.6 |
Basic EPS |
(0.95) |
(0.73) |
(0.58) |
(0.31) |
(0.16) |
DPS |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
Adjusted EBITDA |
(14,968) |
(10,068) |
(7,749) |
(7,630) |
(6,442) |
Adjusted EBIT |
(17,209) |
(11,485) |
(8,537) |
(8,430) |
(7,242) |
Adjusted PBT |
(17,864) |
(13,635) |
(10,915) |
(10,796) |
(8,335) |
Adjusted EPS, €/sh |
(0.95) |
(0.73) |
(0.58) |
(0.31) |
(0.16) |
Adjusted diluted EPS, €/sh |
(0.95) |
(0.73) |
(0.58) |
(0.31) |
(0.24) |
|
|
|
|
|
|
Balance sheet |
|
|
|
|
|
Property, plant and equipment |
1,455 |
987 |
719 |
719 |
719 |
Intangible assets |
242 |
190 |
156 |
156 |
156 |
Other non-current assets |
1,857 |
2,779 |
3,113 |
3,113 |
3,113 |
Total non-current assets |
3,554 |
3,956 |
3,987 |
3,987 |
3,987 |
Cash and equivalents |
950 |
506 |
321 |
5,991 |
5,991 |
Inventories |
1,860 |
1,432 |
1,226 |
1,593 |
2,852 |
Trade and other receivables |
164 |
467 |
502 |
801 |
1,606 |
Other current assets |
1,212 |
713 |
808 |
808 |
808 |
Total current assets |
4,186 |
3,118 |
2,857 |
9,193 |
11,258 |
Non-current loans and borrowings |
20,672 |
33,810 |
44,703 |
21,545 |
29,800 |
Other non-current liabilities |
149 |
143 |
66 |
66 |
66 |
Total non-current liabilities |
20,821 |
33,953 |
44,769 |
21,610 |
29,865 |
Trade and other payables |
1,416 |
888 |
1,385 |
1,286 |
2,631 |
Current loans and borrowings |
265 |
323 |
272 |
272 |
272 |
Other current liabilities |
1,658 |
1,495 |
1,087 |
1,087 |
1,087 |
Total current liabilities |
3,339 |
2,706 |
2,745 |
2,645 |
3,991 |
Equity attributable to company |
(16,421) |
(29,584) |
(40,670) |
(11,076) |
(18,611) |
Non-controlling interest |
0 |
0 |
0 |
0 |
0 |
|
|
|
|
|
|
Cashflow statement |
|
|
|
|
|
Profit for the year |
(17,750) |
(13,520) |
(10,915) |
(10,796) |
(8,335) |
Taxation expenses |
(114) |
0 |
0 |
0 |
0 |
Profit before tax |
(17,864) |
(13,520) |
(10,915) |
(10,796) |
(8,335) |
Net finance expenses |
822 |
1,739 |
2,378 |
2,366 |
1,093 |
EBIT |
(17,041) |
(11,781) |
(8,537) |
(8,430) |
(7,242) |
Depreciation and amortisation |
5,409 |
1,327 |
372 |
800 |
800 |
Share based payments |
0 |
0 |
0 |
0 |
0 |
Other adjustments |
2,243 |
(692) |
(796) |
800 |
800 |
Movements in working capital |
(791) |
(341) |
160 |
(765) |
(720) |
Cash from operations (CFO) |
(10,180) |
(11,487) |
(8,801) |
(7,596) |
(6,362) |
Capex |
(2,168) |
(870) |
93 |
(800) |
(800) |
Acquisitions & disposals net |
4 |
3 |
0 |
0 |
0 |
Other investing activities |
0 |
0 |
0 |
0 |
0 |
Cash used in investing activities (CFIA) |
(2,164) |
(868) |
93 |
(800) |
(800) |
Net proceeds from issue of shares |
23 |
(72) |
48 |
39,590 |
0 |
Movements in debt |
12,487 |
11,480 |
8,518 |
(28,828) |
8,255 |
Dividends paid |
0 |
0 |
0 |
0 |
0 |
Other financing activities |
(164) |
(23) |
(40) |
(2,366) |
(1,093) |
Cash from financing activities (CFF) |
12,346 |
11,385 |
8,526 |
8,396 |
7,162 |
Currency translation differences and other |
(1) |
525 |
10 |
0 |
0 |
Increase/(decrease) in cash and equivalents |
0 |
(444) |
(171) |
0 |
0 |
Cash and equivalents at end of period |
950 |
506 |
321 |
5,991 |
5,991 |
Net (debt) cash |
(19,560) |
(33,201) |
(44,449) |
(15,620) |
(23,875) |
Movement in net (debt) cash over period |
(19,560) |
(13,641) |
(11,248) |
28,828 |
(8,255) |
Source: Orège, Edison Investment Research
|
|
Research: Industrials
Daldrup & Söhne (D&S) continues to implement its corporate restructuring programme and in July it sold 49% of Geysir Europe to IKAV. H119 results showed a small decline in profitability versus H18 (but an improvement versus FY18) and D&S believes the transition will continue into FY20. The executive board continues to guide for a total group output of €40m and an operational break-even for FY19. Consensus remains more optimistic than guidance and based on consensus forecasts, D&S is trading on an EV/sales multiple for FY19 of 1.2x, compared with a peer group average of 4.1x.