Green Landscaping: Cultivates the soil for a flourishing future - SEB

We initiate coverage of Green Landscaping, a leading provider within maintenance and landscaping of green areas and outdoor environments. Following a rapid expansion, Green has become the undisputed local market leader and is now turning its focus towards the broader Nordic market. We see ample room for Green to continue to leverage on its size, while maintaining local anchoring, which has proven to be key for success in the past.
A steadily growing underlying market
Driven by mega trends such as urbanization and increased environmental awareness, we believe that Green can deliver solid growth in a market characterized by stability and counter-cyclicality. Through increased spending in major metropolitan areas and support from recent acquisitions, we estimate a revenue CAGR of 7.1% between 2019 and 2022.

Local markets require an entrepreneurial spirit
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%).

https://research.sebgroup.com/pdf/GreenLandscapingIOC150920.pdf

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