EUR 476.20 For Business Accounts Only

AFRY - Initiation of coverage - Caught in the middle

We estimate that 40%+ of AFRY’s business should benefit from the green transition and higher demand for consulting services relating to digitalisation, urbanisation, and European energy security. However, weakness in some of its end-markets (mainly real estate) is intensifying competition and putting pressure on margins, and looks set to hamper its performance short-term. We initiate coverage with a HOLD and SEK150 target price. Europe’s third-largest consulting company with a strong Nordic focus. AFRY is a multidisciplinary engineering and architecture consulting company, with 75% of its operations in the Nordics. Its 19,000 employees offer design, digital and advisory services, primarily in the energy, industrial, and infrastructure sectors. Benefiting from green transition. We estimate that 40%+ of AFRY’s business stands to benefit from the green transition, and that most of its business should benefit from growing demand for digitalisation, urbanisation, and European energy security. Performance hampered short-term, but solid outlook long-term. Market weakness in some segments has intensified competition and put pressure on margins – as seen in AFRY’s Q2 results. We expect its financial performance to be hampered short-term, but believe the long-term outlook is solid. Lowly valued for several reasons. AFRY is trading at a 35% discount to its 5-year average 12-month forward P/E and a 23% discount to primary peers (5-year average of a 5% discount to primary peers). It has had a sharp de-rating over the past two years, driven by lacklustre results in some areas, lingering trouble-spots, weakened financials (all-time high leverage), and a less-resilient operating model than some peers amid rapidly changing end-market demand (real estate, infrastructure transportation, energy). Initiating coverage with a HOLD and SEK150 target price, based on our DCF and four peer groups’ 2023–2025e multiples. While AFRY should benefit from sector-wide structural growth drivers, we consider the stock fairly valued on concerns about its financial performance short-term. We are broadly in line with consensus on 2023–2025e revenue and EBITA.