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After a long period of searching for another profitable acquisition, Dolfines decided to expand its footprint in the Health, Safety and Environment market and buy out AEGIDE International, which has more than 200 clients across the world. In FY22, the acquired company generated turnover of €2.75m, and had averaged 15% annual growth over the last three years. In our view, the acquisition enhances Dolfines’ opportunities and sheds some light on the future path of the company.
Companies: Dolfines SA
Dolfines has executed an equity financing programme to prop up its balance sheet and finance an acquisition in FY22. The result was a year-long downhill trend on the share price at a stupefying level of 98%. Committed to the strategy to generate more revenues and expand market share, Dolfines embarked on another cash-accretive acquisition opportunity this year, again with equity line financing that will sustain downward pressure on the stock for at least until the end of Q1.
CHANGE IN TARGET PRICE € 0.06 vs 0.07 -21.6%
The target price is reduced due to the declining DCF and NAV values. At such low prices, a slight change in the price brings about significant change.
CHANGE IN NAV € 0.10 vs 0.14 -27.4%
The NAV decrease stems from the massive dilution the company carried out in FY2022 with the number of shares increasing by more than 12x. The share issuance continued in early FY2023, further reducing the NAV.
CHANGE IN DCF € 0.09 vs 0.12
Capital increase slashes the valuation
CHANGE IN NAV € 0.14 vs 0.27 -48.4%
Since our last update, Dolfines has continued its capital increase programme with the conversion of the remaining bonds. The conversion of notes resulted in a massive dilution by creating more than 100 million shares (almost doubling), which was reflected in the tanking share price since September 2022. Accordingly, our NAV is severely impacted by the rising number of shares.
CHANGE IN DCF € 0.12
Costly financing cuts the target price
CHANGE IN TARGET PRICE € 0.14 vs 0.40 -66.0%
In the aftermath of last week's developments on equity line financing, we have updated our model. The massive dilution resulted in a 3x increase in the number of outstanding shares. We are expecting the financing woes to continue into next year, and have hence downgraded our target price.
CHANGE IN EPS
2022 : € (0.01) vs (0.02) ns
2023 : € (0.01) vs (0.03) ns
The dilution as a resul
In a recent round of equity line financing with convertible bonds, Dolfines was able to bring €4,135k to finance a new acquisition, pay debts and invest in research and development projects. But this came at a grave cost for the shareholders as the share price nose-dived. At this point, the company and the shareholders could only hope for this precarious form of financing to do its job and facilitate cash generation from investments.
Revenue stood at €4.3m in H1, confirming the positive momentum communicated in Q1. The Oil & Gas activities recovered sharply with the high oil price, while the strong growth continued at 8.2 France. The prospects also look good for H2, with drilling activity remaining elevated and with the workforce growing in Renewable energies. Overall, a positive update, which will help to support the stock price.
The strategy update was in line with the recent communications from the company, but provided more details ahead of the capital increase. While the oil & gas activities continue to recover, the priority remains on renewables (both inorganic and organic). A large share of the proceeds will fund acquisitions, with one soon to be announced in renewables services. Furthermore, the company is aiming to break-even at operating cash flow level by the end of the year.
CHANGE IN EPS
2022 : € (0.02) vs (0.02) ns
2023 : € (0.03) vs (0.03) ns
We have updated our model with the integration of the FY21 results and net loss of €1.55m. Estimates for FY22/FY23 are unchanged.
CHANGE IN NAV € 0.83 vs 1.01 -17.0%
Following the FY21 results, we have added a €4m capital increase, at a subscription price of €0.30 per share, leading to the creation of 13.3m shares. This represents a c. 30% discount on the 29/04/2022 closing price (day of the annou
The FY21 results came in below our expectations as Covid-19 dragged on mobility thus limiting oil & gas activities, although the strong start to the year confirms that the recovery is ongoing. As investments ramp up, the company has announced a c. €4m recap, split between debt conversion and an equity increase. The latter should be enough to sustain research & development activities in renewables for both the new floater and the telescopic arm for offshore wind inspection.
CHANGE IN EPS
2021 : € (0.06) vs (0.06) ns
2022 : € (0.02) vs (0.03) ns
The company has published a positive release, with a strong January and February in inspection and audit (Factorig). We are thus slightly increasing our estimates for Factorig, to €3m of revenue for FY22 vs €2.5m previously, partly offset by lower estimates in Services, where we now forecast revenue of €1.5m vs €1.7m previously.
The stock is up 15% at pixel time on a positive press release showing a turnover (for January and February) higher than in 2019 (at €1.3m). This is led by Factorig (inspection division), where the company performs work in Latin America, and has a strong commercial activity.
Positive news in oil & gas with this prequalification for rig inspection and acceptance services for Saudi Aramco Drilling. The Middle East has been particularly resilient to the oil crisis, where Factorig has recently signed several contracts with new customers. Overall, the low breakeven levels, as well as continuing development works, will allow a decent level of activity in inspection services across the whole business cycle.
Updating shares outstanding on potential debt conversion
CHANGE IN NAV € 0.99 vs 1.19 -16.6%
The NAV and DCF are down as we have updated the conversion of the (€1.5m) green bond issued in January 2021 to the current share price level, with a 20% discount, leading to the creation of 3.3m shares. Note that, ultimately, the dilution of shares will depend on the bondholders’ decision to convert, and the conversion price (which depends on the stock price). Note that we have als
The company is issuing a €2m green bond and is separating the conventional and renewable activities. The latter was already announced early last year, yet it seems that the improving environment in oil & gas explains this restart. The stock is up 15%, after a volatile November, and, in our view, due to the company issuing the €2m bond instead of using the OCABSA line.
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Status of this Note and Disclaimer
This document has been issued to you by Hybridan LLP for information purposes only and should not be construed in any circumstances as an offer to sell or solicitation of any offer to buy any security or other financial instrument, nor shall it, or the fact of its distribution, form the basis of, or be relied upon in connection with, any contract relating to such action. This document has no regard for the specific investment objectiv
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