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.
DNB Markets is the investment banking arm of DNB Bank ASA and is focused primarily on the Nordic region, as well as internationally on niches such as global shipping, energy and related services, and seafood. DNB Markets offers services in FICC, Equities and Investment Banking advisory from offices in Oslo, Stockholm, London, Singapore and New York. Equity research coverage is offered on c250 Nordic companies. DNB was ranked no.2 in Extel Nordic Research 2017. The DNB Markets’ Credit and FICC Macro & FX Research teams are repeatedly highly rated by Prospera Nordic Institutional Investor Surveys.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.