Daldrup & Soehne AG (DE:4DSG) continues to benefit from regulatory support for geothermal energy in Germany. This is evidenced by its order backlog of €75m to date, sufficient to support its full engineering capacity for all business divisions into 2019. Meanwhile, its geothermal power plants in Landau and Taufkirchen are scheduled to come online before the end of 2017. Management confirmed, in a press release on 4 October, FY17 guidance of €40m in output (revenue plus change in work-in-progress) and an EBIT margin of 2-5% (compared to 2% in FY16). We believe that the company needs to achieve at least 2.5% EBIT margin in order to cover its interest expenses.
H117 results on track
H117 results indicate that Daldrup & Söhne’s is on track to achieve its guidance for the year. Output was €22.8m (up 8.5% y-o-y), EBIT was €0.5m (up 25% y-o-y) and EPS was €0.03 (vs €0.00 in H116). H117 interest expenses of €0.60m were in line with H116, despite an increase in net debt to €8.95m. As Daldrup & Söhne reports according to German GAAP all costs and expenses are recognised when incurred and profitability is based on output (revenue plus change in work-in-progress).
Landau and Taufkirchen plants to produce electricity
Management is stepping up efforts in project development and ownership with a view to creating predictable revenue streams as an independent power producer to counterbalance the volatility of the drilling/engineering business. The Landau geothermal plant (40% owned by Daldrup & Söhne) is currently running trial operations and commercial production is scheduled by the end of 2017. The Taufkirchen geothermal plant (38.9% owned) is also projected to start producing power before the year end. The revenue/profit contribution from these two plants is not factored into management’s guidance for FY17. As of the end of June 2017, both plants are equity accounted.
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