Q3 again highlighted the strength of Vestum's Water segment, which delivered strong sales growth of 43% y-o-y, of which 20% was organic, while also maintaining good profitability (18% EBITA margin). This, and stronger margins for product companies in Infra, drove a total beat on adj. EBITA of 7% vs. us and 16% vs. Modular Finance consensus. Service was weaker than expected and management highlighted that the market remains weak, which we have heard from Instalco and Bravida as well recently. We therefore raise EBITA in Water by 6% but cut Service by 7-5% for a relatively neutral effect on '25-'26e. That said, management reiterated a positive outlook for Water while also highlighting a strong pipeline for Infra starting in early 2025, which we find encouraging. We therefore expect a sharp recovery in volumes for Infra but a more muted performance for Service in H1'25.
We still see margins and ROCE >12% by 2026e
Products (>15% average margins) is now 50% of LTM adj. EBITA, up from 44% in 2023 and 35% in 2022. While a recovery in the service business in 2025 should slow the trend, we still expect product to grow as a share of the group. As a result, we continue to see normalised margins of 12% by 2026e (11% 2025e) vs. 9-10% in 2023-2024e. This should also result in ROCE improving to 11-12% in 2025-2026e (8% in 2023-2024e).
8-7x EV/EBITA '25e-'26e, ~20-30% below key peers
We argue that the growth in Water (and product companies in other segments) continues to improve the quality of the group, which should also be reflected in a better ROCE from 2025e. Looking ahead, we estimate that Vestum will deliver growth, margins, ROCE and cash conversion roughly in line with key peers, while Vestum is trading at 8-7x EV/EBITA '25-'26e, which is ~20-30% below key peers at 11-9x.
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