EUR 446.26 For Business Accounts Only

Sweco - Initiation of coverage - From strength to strength

We initiate coverage on Sweco with a BUY and SEK135 target price. We estimate 80%+ of its portfolio should benefit from the green transition and increased demand for services relating to European energy security, digitalisation, and urbanisation. In addition, we expect its growing scale, a more diversified portfolio, and the decentralised business model to support accelerated sales growth (8.9% on average for 2023–2025e) as well as margin expansion, and to further widen its relative performance gap to peers. European market leader. Sweco is Europe’s largest multidisciplinary engineering and architecture consulting firm, and among the leading urban developers, with a strong focus on infrastructure and building construction, installation technology, architecture, energy, and environmental services. Benefiting from key structural growth drivers. Given continuous portfolio mix improvements, we estimate 80%+ of Sweco’s operations should benefit from the green transition, increased demand for services relating to European energy security, digitalisation, and urbanisation. Well placed for growth and margin expansion. By leveraging its scale, decentralised business model and diversified portfolio, Sweco has generated double-digit sales growth on average over the past decade and a sector-leading EBITA margin. For 2023–2025, we estimate accelerated sales growth and margin expansion versus the past five years, with average sales growth of 8.9% (2018–2022: 7.4%) and average adj. EBITA growth of 13.1% (2018–2022: 8.4%), driven by its competitive advantages, which should grow in importance, and market trends. We are above sales and EBITA consensus by 2% and 3% for 2023e, 3% and 3% for 2024e, and 4% and 3% for 2025e, respectively. Initiating coverage with a BUY and SEK135 target price, based on our DCF and peer groups’ 2023–2025e multiples. The stock is trading at a discount of c30% to its 5-year average 12-month forward P/E.