Technical expertise, decades of reputation and client relationships: Exploring a rare European gem with the kind of value-for-money I haven’t seen in a long time
I like this write-up, thank you for releasing it for free.
I'm curious if you're at all concerned with the company potentially mean-reverting back to it's previous Gross and Operating margins pre-2021? Could the company be over earning because of a super cycle in renovations (Green subsidies, etc.)?
That's the big question mark off the top of my head.
Great question and yes, it’s something I’ve thought about.
There’s definitely a risk that current margin levels aren’t sustainable if we're in a transitory “golden period” boosted by renovation cycles.
Now I would say that it will depend heavily on the project mix and that there are different effects that could function as tailwinds or headwinds for each of the segments of the construction industry matrix that I shared in the write up.
1) If you end up having lower rates in general that could help residential but of course lower activity would limit new projects
2) The current rapid increase in bankruptcies in 2025 could help on the bidding part
3) Retrofitting to comply for new regulations would seem like a long term secular trends and i've seen reports that forecast this segment growing until 2030.
So it's really hard to pin which is the effect is going to prevail.
I'd say that the current record backlog, how it's been improving and the mix of projects in it provide some comfort for the short term.
Appreciate you raising the question — definitely a key bear case worth tracking.
Thanks for the long write-up, based on the numbers i agree, but you are not accounting that they got massive government spending help not only from the eu, but also from the walloon government after covid, and that's about to be over. There's also a lot of ifs in your write-up, so that's probably why they trade at what they trade. The liquidity is also extremely low, so just publishing on your blog about it increased the price of the share already.. What happens if the cash leaves the business as a dividend? Then you will pay a hefty tax, you portray it as if you know they will make all the right decisions. In my experience that seldom happens with small businesses. If I understand it correctly they built up that cash over years, so the roic numbers are off when they're not using it?
From what I’ve gathered, the CEO seems confident about maintaining healthy margins and has a positive outlook on the project pipeline. It also appears that several EU funding programs — beyond the immediate post-COVID ones — are still active and could remain in place for a few more years. Now, will depend how the demand drivers of the different segments of the market evolve, but I don't forget that this is a cyclical industry, something that the CEO also mentions many times and the reason they are so conservative.
I am aware of the tax and I am ok with the special dividend they are proposing and hinting for the next years. On the roic yes, I took all the cash away which obviously they use to run the business, a part of it at least, feel free to add that portion back to the IC.
- The bookings outlook still looks solid, at least through 2025 and 2026.
- Interest rates are likely to stay around 1.5% to 2% over the next 12 months, which should help keep the sector moving.
- It’s worth noting that real estate is responsible for over 50% of greenhouse gas emissions—something that’s going to have to change, even if the pace is slower than the EU expected four years ago.
Overall, it’s an impressive thesis with solid research. If you tweak the revenue forecasts a bit more for the next three years and run a few different scenarios, I think you’d see valuations in the €700–750/share range. That’s a bit more cautious, but it still lines up well with the current fair value for such a strong stock.
Thank you for the kind words, Hugo. Yes, the outlook looks good in the short term. I'm not trying to forecast much further out than that — I appreciate the conservative way they run the business, and I'm ok with the industry's inevitable cyclicality over the long term.
The author does talk a lot about a sector indeed but you're investing in the sector, this company did benefit massively from post covid subsidy progams. A 25 to 40% drop in revenue and a drop in margins is realistic beyond that when work in the sector becomes more scarce. There's also the possibility that they misallocate the money, that they do dividends with it that are heavily taxed. The negatives get a bit ignored here imo.
How relevant are COVID-related incentives in 2024 revenues?
The key question is how you’re modeling their impact in the future. Personally, I think assuming a CAGR of 4% to 8% for the next few years, then gradually converging to 2%, seems reasonable. I believe tailwinds will make it closer from 8%, vertical integration and local reputation will probably allow company to hold operating profit margin.
I did a fast napkin DFC (with Capex = D&A, and Delta NWC =0), and Equity value =416M Vs 232M (today's Market cap).
I don't find the percentage of their revenue that is financed by these temporary programs but i would assume it's substantial.
EU states have till the last day of 2026 to use these covid funds. Hence, it wouldn't surprise me that margins shrink and revenue may even shrink substantially after that. Using an almost linear dcf for an company that is at a cyclical high is not right. I agree that my model is more on the cautious end. But the writer sadly doesn't take this hypothesis into account. One of their projects in the bookings is also a project of 60 million, which is also a special event.
I like this write-up, thank you for releasing it for free.
I'm curious if you're at all concerned with the company potentially mean-reverting back to it's previous Gross and Operating margins pre-2021? Could the company be over earning because of a super cycle in renovations (Green subsidies, etc.)?
That's the big question mark off the top of my head.
Great question and yes, it’s something I’ve thought about.
There’s definitely a risk that current margin levels aren’t sustainable if we're in a transitory “golden period” boosted by renovation cycles.
Now I would say that it will depend heavily on the project mix and that there are different effects that could function as tailwinds or headwinds for each of the segments of the construction industry matrix that I shared in the write up.
1) If you end up having lower rates in general that could help residential but of course lower activity would limit new projects
2) The current rapid increase in bankruptcies in 2025 could help on the bidding part
3) Retrofitting to comply for new regulations would seem like a long term secular trends and i've seen reports that forecast this segment growing until 2030.
So it's really hard to pin which is the effect is going to prevail.
I'd say that the current record backlog, how it's been improving and the mix of projects in it provide some comfort for the short term.
Appreciate you raising the question — definitely a key bear case worth tracking.
Thanks for the long write-up, based on the numbers i agree, but you are not accounting that they got massive government spending help not only from the eu, but also from the walloon government after covid, and that's about to be over. There's also a lot of ifs in your write-up, so that's probably why they trade at what they trade. The liquidity is also extremely low, so just publishing on your blog about it increased the price of the share already.. What happens if the cash leaves the business as a dividend? Then you will pay a hefty tax, you portray it as if you know they will make all the right decisions. In my experience that seldom happens with small businesses. If I understand it correctly they built up that cash over years, so the roic numbers are off when they're not using it?
Hi thanks for the comment
From what I’ve gathered, the CEO seems confident about maintaining healthy margins and has a positive outlook on the project pipeline. It also appears that several EU funding programs — beyond the immediate post-COVID ones — are still active and could remain in place for a few more years. Now, will depend how the demand drivers of the different segments of the market evolve, but I don't forget that this is a cyclical industry, something that the CEO also mentions many times and the reason they are so conservative.
I am aware of the tax and I am ok with the special dividend they are proposing and hinting for the next years. On the roic yes, I took all the cash away which obviously they use to run the business, a part of it at least, feel free to add that portion back to the IC.
- The bookings outlook still looks solid, at least through 2025 and 2026.
- Interest rates are likely to stay around 1.5% to 2% over the next 12 months, which should help keep the sector moving.
- It’s worth noting that real estate is responsible for over 50% of greenhouse gas emissions—something that’s going to have to change, even if the pace is slower than the EU expected four years ago.
Overall, it’s an impressive thesis with solid research. If you tweak the revenue forecasts a bit more for the next three years and run a few different scenarios, I think you’d see valuations in the €700–750/share range. That’s a bit more cautious, but it still lines up well with the current fair value for such a strong stock.
many thanks for the amazing work!
Thank you for the kind words, Hugo. Yes, the outlook looks good in the short term. I'm not trying to forecast much further out than that — I appreciate the conservative way they run the business, and I'm ok with the industry's inevitable cyclicality over the long term.
The author does talk a lot about a sector indeed but you're investing in the sector, this company did benefit massively from post covid subsidy progams. A 25 to 40% drop in revenue and a drop in margins is realistic beyond that when work in the sector becomes more scarce. There's also the possibility that they misallocate the money, that they do dividends with it that are heavily taxed. The negatives get a bit ignored here imo.
How relevant are COVID-related incentives in 2024 revenues?
The key question is how you’re modeling their impact in the future. Personally, I think assuming a CAGR of 4% to 8% for the next few years, then gradually converging to 2%, seems reasonable. I believe tailwinds will make it closer from 8%, vertical integration and local reputation will probably allow company to hold operating profit margin.
I did a fast napkin DFC (with Capex = D&A, and Delta NWC =0), and Equity value =416M Vs 232M (today's Market cap).
I don't find the percentage of their revenue that is financed by these temporary programs but i would assume it's substantial.
EU states have till the last day of 2026 to use these covid funds. Hence, it wouldn't surprise me that margins shrink and revenue may even shrink substantially after that. Using an almost linear dcf for an company that is at a cyclical high is not right. I agree that my model is more on the cautious end. But the writer sadly doesn't take this hypothesis into account. One of their projects in the bookings is also a project of 60 million, which is also a special event.