NYAB: International expansion factored into forecasts

Translation: Original published in Finnish on 12/2/2024 at 10:25 pm EET.

We reiterate our SEK 6.8 target price for NYAB but raise our recommendation to Buy (was Accumulate) on the back of a drop in the share price. We have included the recently announced platform acquisition in our forecasts even though the deal has not yet technically closed. However, we believe the deal is very likely to go through. The profile of the acquired businesses smoothes the seasonality of NYAB's performance, but this is offset by the acquired staffing businesses, which are considered to weigh on the acceptable valuation of the stock. Despite this, we see the stock as currently very attractively valued. 

Deal smoothes the seasonality of business

A couple of weeks ago, NYAB announced a major strategic platform acquisition after entering into a conditional agreement to acquire the Global Project Personnel and Norwegian Consulting businesses of Dovre Group. We believe that the Consulting business fits well with NYAB's business profile and also offers cross-selling opportunities with the Swedish business. In the Project Personnel business, however, synergies are considerably more limited, and we see this as an entry into a new business area. However, both businesses will offset the seasonal nature of NYAB's business, as their revenue streams are fairly stable on average throughout the year. We believe that this was also a significant factor behind the deal. We are neutral on the acquisition at this point and commented on it in more detail here.

Acquisition to be completed early next year

We added the acquisition to our forecasts already at this stage, although the deal is not expected to close until early 2025 and remains subject to approval by Dovre Group's Extraordinary General Meeting. However, we believe that the deal is likely to go through as more than 40% of Dovre shareholders have announced that they will vote in favor. Compared to this year (Q1-Q3'24: revenue 84.1 MEUR, adjusted EBIT 3.2 MEUR), we have expected a relatively stable development of the business, and thus our operational forecasts for the coming years went up significantly. In line with the rising debt level, we also increased our financing cost forecasts and slightly lowered our dividend forecasts. However, we will further clarify our assumptions with the company’s reporting. Similarly, we have not made any material changes to our projections for NYAB's current operations. Overall, we expect revenue to increase to 493 MEUR (prev. 381 MEUR) and EBIT to increase to 32.7 MEUR (prev. 28.2 MEUR).

Valuation down to rather attractive levels

We believe the acquisition has lowered NYAB's acceptable valuation by a notch, as Project Personnel represents a significantly larger portion of the acquired revenue streams and has a lower profitability profile than the rest of NYAB's business. Thus, we see the current acceptable valuation at 12x-16x P/E and 11x-15x EV/EBIT (prev. P/E: 13-17x, EV/EBIT 12-16x). Based on our updated forecasts, NYAB's 2025 adjusted P/E multiple is 13x and the corresponding EV/EBIT multiple is approximately 9x. We see significant upside next year relative to our accepted valuation, particularly on the EV-based multiple, which continues to reflect the strong balance sheet. Our range of expected total returns over the medium term is also above our required return. Further support for the strong positive recommendation comes from our sum-of-the-parts model, which now stands at SEK 6.3-7.6 (prev. SEK 6.1-7.4).