As services are provided with a regional scope at most, adjusting to local preferences provides the basis for efficiency and satisfied customers willing to pay a premium. In order to maintain its local know-how and entrepreneurial spirit, Green operates a decentralized organization, while partly financing acquisitions through issuance of new shares. In our view, the local approach coupled with scale benefits within purchasing and group functions bodes well for future margin improvements. We see scope to lift the EBITA margin from 4.5% in 2019 to 7.4% in 2022, i.e. close to the target of 8%.
Mid-point DCF value of SEK 40 per share
Based on our forecasts, Green currently trades at 2022E EV/Sales of 0.7x, which is below peers considering the difference in margins. Through a DCF approach, we derive a fair share price range of SEK 34-46 per share with a mid-point value of SEK 40 (WACC of 7.6%, steady state EBIT margin of 7.4%).