Daldrup & Soehne — Reshaping the business

Daldrup & Söhne (DB: 4DS)

Last close As at 21/11/2024

5.85

0.00 (0.00%)

Market capitalisation

36m

More on this equity

Research: Industrials

Daldrup & Soehne — Reshaping the business

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.

Analyst avatar placeholder

Written by

Industrials

Daldrup & Söhne

Reshaping the business

Alternative energy

Scale research report - Update

11 October 2019

Price

€3.53

Market cap

€21m

Share price graph

Share details

Code

4DS

Listing

Deutsche Börse Scale

Shares in issue

6.0m

Last reported net debt as at June 2019

€62.6m

Business description

Daldrup & Söhne is an onshore drilling and environmental services company with vertically integrated competencies in geothermal projects (from feasibility study, permitting and constructing to power supply contracting). It is seeking to create predictable revenue streams as an independent power producer.

Bull

Emission reduction and renewable energy targets provide a positive macro environment.

Favourable feed-in tariffs continue in Germany.

Healthy order book.

Bear

Investment in geothermal power is capital intensive.

Projects can be subject to delays.

Daldrup & Söhne has little surplus capital for expansion.

Analyst

Graeme Moyse

+44 20 3077 5700

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.

H119 results show a slight decline in EBIT

Daldrup & Söhne’s H119 results showed a total output of €22m, in line with H118. EBIT fell from €1.2m in H118 to -€1.0m in H119. The main reasons for the decline in operating profit were a fall in other operating income (-€0.6m, due to the absence of provision reversal) and a slight rise in material costs (+€0.3m) and personnel expenses (+€0.2m). However, the main cause of the fall in EBIT was the rise in other operating expenses (+€1.4m – mainly costs associated with the sale of its majority stake in its power plant), principally due to the increased cost of removing the overburden. Net debt rose slightly from €62.3m to €62.6m. The figures do not include the receipt of €5.2m from the sale of shares in Geysir Europe (received in July). Any future sale of the Taufkirchen power plant would significantly reduce the debt burden for D&S. Debt reduction remains an important part of the group continuing restructuring plan.

Strong demand for geothermal power

Low interest rates, favourable and stable regulation, the requirement to reduce CO2 emissions and the stability that baseload geothermal power provides to the grid, all continue to favour geothermal power. The ongoing strength of the market is reflected in D&S’s order book with an order backlog of €43m at the end of August and a potential pipeline of €89m. For 2019, the executive board’s guidance remains for a total output of €40m and a ‘balanced’ or break-even EBIT figure.

Valuation: Transition reflected in rating

Our valuation analysis uses FY19 consensus forecasts for output of €43m and EBIT of €5m. Consensus continues to reflect a more optimistic outlook for the group than management’s guidance for total output of €40m and EBIT break-even. Our consensus-based analysis shows that D&S is trading on an EV/sales multiple for FY19 of c 1.2x compared with a selected peer group average of c 4.1x.

Consensus estimates

Year
end

Revenue
(€m)

EBIT
(€m)

Net Income
(€m)

EPS
(€)

P/E
(x)

Yield
(%)

12/17

43.0

1.1

0.0

0.0

N/A

N/A

12/18

38.9

(16.6)

(17.2)

(2.9)

N/A

N/A

12/19e

43.0

5.0

(1.0)

(0.1)

N/A

N/A

Source: Refinitiv

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.

H119 results

D&S’s H119 results showed a total performance figure of €22m, in line with H118. Despite a comparable performance at the top line with H118, H119 group EBIT fell from €1.2m in H118 to €1.0m. The main reasons for the decline in operating profit were a fall in other operating income (€0.6m due to the absence of the provision reversal that benefitted H118), a slight rise in material costs (+€0.3m) and in personnel expenses (+€0.2m). However, the principal cause of the fall in EBIT was the rise in other operating expenses (+€1.4m), largely due to the cost of removing the overburden.

Exhibit 1: H119 results versus H118 – key highlights

€m

H118

H119

Change (%)

Sales

17.1

9.7

-43%

Increase in WIP

4.9

12.3

+151%

Output

22.0

22.0

0%

EBITDA

3.1

0.8

-77%

EBIT

1.2

(1.0)

N/A

Debt

(64.7)

(63.7)

Cash

2.4

1.1

Net debt

(62.3)

(62.6)

Cash flow:

From operating activities

35.9

3.0

-92%

From investing activities

(61.0)

(0.6)

-99%

From financing activities

2.6

(4.4)

-272%

Source: Daldrup & Söhne

Liabilities to banks reduced from €11.0m in H118 to €9.1m, although other liabilities (which should also be treated as debt) rose from €53.7m to €54.6m. Cash on hand declined by €1.3m from €2.4m to €1.1m. Despite a c €3m positive cash flow from operating activities, a significant outflow from financing activities of €4.35m (bond redemption), offset in part by an FX impact of +0.6m, led to the €1.3m decline in cash in hand (after FX adjustments). The overall total debt of the business declined slightly, from €64.7m to €63.7m, although net debt rose from €62.3m to €62.6m. The figures do not include the receipt of €5.2m from the sale of shares in Geysir Europe (received in July). Any future sale of the Taufkirchen power plant (currently under discussion) would significantly reduce the company’s debt burden. We previously estimated that total liabilities associated with Landau and Taufkirchen to be in the region of €33m. Debt reduction remains an important part of the group restructuring plan.

Post period announcements

Since the period end, Daldrup & Söhne has made two important announcements. In July it completed an important part of the ongoing group restructuring programme with the sale of shares (48.9%) in Geysir Europe and geox (1.0%) to the energy investor IKAV, receiving €5.2m in consideration. In August, D&S confirmed that Stephan Temming, who joined the group in July 2017, had been appointed CFO (with a mandate lasting until 30 July 2024). Mr Temming will be responsible for financial control, business development and investor relations.

Exhibit 2: Post period-end announcements

Date

Event

19 July 2019

Concludes contract with private equity investor IKAV for the sales of shares in Geysir Europe and geox

23 August 2019

Appointment of Stephan Temming as CFO

Date

19 July 2019

23 August 2019

Event

Concludes contract with private equity investor IKAV for the sales of shares in Geysir Europe and geox

Appointment of Stephan Temming as CFO

Source: Daldrup & Söhne

Continuity of strategy

After failing to meet its group revenue target or forecast EBIT margins for 2018, Daldrup & Söhne announced a revised strategy for the business (in June 2019). In future, the group’s focus will be on the drilling services business, but D&S will continue to invest in medium-sized power projects, although it does not intend to take a majority position in any of its projects. In short, D&S will diversify its risk over a wider range of projects. While seeking to implement this new strategy D&S will also focus on tightening internal processes (order control, reporting tools) including stricter control and monitoring of the drilling projects. However, a significant amount of corporate restructuring will also be required and to this end, in July, as outlined above, D&S concluded its first contract with the energy investor IKAV, for the sale of shares in Geysir Europe. Discussions for the sale of the Taufkirchen power plant are continuing. It is expected that the restructuring measures will continue to affect the results for FY19 and FY20. D&S will seek to remain a pioneer in deep geothermal energy providing municipal and business consumers with access to this low carbon form of energy.

Outlook

The macro business environment continues to appear favourable and D&S sees evidence of ongoing interest in geothermal power from both private and municipal customers and indeed it believes that there is an increasing level of interest in projects across Europe. Low interest rates, favourable and stable regulation, the requirement to reduce CO2 emissions and the stability that baseload geothermal power provides to the grid, all continue to favour geothermal power.

The continuing strength of the market is reflected in D&S’s order book with an order backlog of €43m as at the end of August and a potential pipeline of €89m. Although the latest figures represent a small decline on the €48m and €105m recorded at the end of May, they still reflect a robust outlook. The management board continues to expect ‘satisfactory’ results for FY19 and FY20 at the AG level (drilling services only) – total output of €39m and an EBIT margin of between 2% and 5%). For the group however, the implementation of the D&S group restructuring plan will continue to affect the results and the executive board sees FY19 and FY20 as years of transition (with ongoing talks regarding the potential sale of the Taufkirchen power plant). For 2019 specifically, the executive board is guiding to total output of €40m and a ‘balanced’, or break-even, EBIT figure.

Valuation

Daldrup & Söhne continues to trade at around €4/share (up from the lows of €2.65/share reached in August). Our valuation analysis uses FY19 consensus forecasts for revenues of €43m and EBIT of €5m. Consensus continues to reflect a more optimistic outlook for the group than the management board’s guidance of total performance of €40m and EBIT break-even. Based on consensus forecasts D&S is trading on an EV/sales multiple for FY19e of c 1.2x compared with a selected peer group average of c 4.1x.

Exhibit 3: Comparable valuation analysis

EV/sales (x)

EV/EBIT (x)

2019e

2020e

2019e

2020e

Daldrup & Söhne

4DS.DE

1.2

1.1

10.5

8.8

Awilco Drilling

AWDR.OL

3.1

2.6

-9.7

-19.6

SD Standard drilling

SDSD.OL

2.5

2.2

9.9

6.0

Northern Drilling

NODL.OL

15.1

3.5

-45.9

15.2

Nabors Industries

NBR.BE

1.4

1.3

-337.0

27.3

Transocean

RIG.BE

3.6

3.3

113.4

39.8

Odfjell Drilling

ODL.NO

1.6

1.4

31.5

13.6

Energiekontor

3.5

1.5

16.4

9.0

Good Energy

GOOD.LN

0.6

0.5

11.3

10.3

Ormat Technology

ORA.US

6.0

5.5

20.9

17.1

Median (excluding D&S and negatives)

4.1

2.4

33.9

17.4

Source: Refinitiv. Note: Prices as at 3 October 2019.

General disclaimer and copyright

Any Information, data, analysis and opinions contained in this report do not constitute investment advice by Deutsche Börse AG or the Frankfurter Wertpapierbörse. Any investment decision should be solely based on a securities offering document or another document containing all information required to make such an investment decision, including risk factors. This report has been commissioned by Deutsche Börse AG and prepared and issued by Edison for publication globally.

Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

More on Daldrup & Söhne

View All

Latest from the Industrials sector

View All Industrials content

Research: TMT

Artec technologies — Prepped and ready to scale

After a strong FY18 with a number of reference orders, H119 was slower than anticipated. Management remains confident about FY19 (H2 should be stronger than H1 due to year-end budgetary cycles), with additional public service wins indicated in Q4. In media, with the exit of Verizon Volicon from the market management believes artec is well placed to win additional European clients. artec invested in capacity in H119 and raised c €1m of equity capital in July to target these accounts and is considering a convertible bond issue to fund M&A. If management can build on the opportunities outlined, we believe there is significant upside to the shares.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free