Green Landscaping Group: Stable Nordics, recent German M&A in focus - ABG

Q2 report due Thursday, 24 August'23e EBITA down 1%, '24e-'25e EBITA up 1%11-9x EBITA '23e-'25e, 12% CAGR '22-'25e, 8-9% FCF yields

Another stable quarterTo our understanding, market dynamics have remained fairly stable vs. Q1, with growing demand, good order activity and GLG internally continuing to see an improvement in its legacy businesses, combined with continued M&A activity. We expect sales of SEK 1,481m, up 31% y-o-y (9% organic, 12% in Q1), mainly due to the recent sizeable (and margin-accretive) acquisitions in the Finland and Baltic (F&B) region. The Swedish market should remain stable, with good organic growth (supported by price/mix), while we expect the mix from recently acquired companies will lower margins y-o-y in Norway. However, we still expect an adj. EBITA of SEK 132m, up 42% y-o-y, for a margin of 8.9% (8.0% in Sweden, 10.0% in Norway, 11.5% in F&B, 8.2% in Q2'22), with roughly flat organic EBITA growth supported by margin-accretive M&A (mainly in F&B).

Estimate changesWe lower 2023e adj. EBITA by 1% due to slightly lower margins in Sweden and Norway and FX (-1%), which is almost offset by positive effects from M&A (3%). As a result, we raise 2024e-2025e EBITA by 1%. For 2023, we now forecast 6% organic sales, which combined with a 9.0% margin yields 26% adj. EBITA growth and a 12% adj. EBITA CAGR '22-'25e.

Consolidation opportunities remain, 11-9x EBITA '23e-'25eWe continue to believe that GLG should be in a good position to grow organically given its exposure to steadily growing markets and a high exposure to public customers (60-70% of sales). M&A headroom remains, and we remain optimistic about GLG's margin trajectory (currently at ~9% vs. ~5% '17-'20). For '22-'25e, we expect GLG to deliver growth, margins, ROCE and FCF in line with peers, while the share is currently trading ~5% below key peers (FG, INSTAL, NORVA), at 11-9x EBITA '23e-'25e and 8-9% FCF yields.

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