Thanks for reading and great question. FCF volatility is mostly due to working capital and backlog pretty typical for EPC companies - cash conversion can change around project milestones, advances/deposits, and retention balances. In previous years, Espe was developing their project pipeline and investing heavily in expanding customers while vertically integrating and building out the O&M part of the business.
Now they have almost 100M Euro backlog with high margins and a developed operation/management service line, giving them recurring revenues, so FCF has gone positive and I expect it to stay there, although didn’t get to speak with management about this. Even if FCF goes negative again I’m not concerned, but if margins decrease and FCF goes negative, that’s when I’d become worried. Thanks again!
Interesting post, any insight into the FCF fluctuation over time? How confident are you it won’t flip back into major negative territory soon?
Thanks for reading and great question. FCF volatility is mostly due to working capital and backlog pretty typical for EPC companies - cash conversion can change around project milestones, advances/deposits, and retention balances. In previous years, Espe was developing their project pipeline and investing heavily in expanding customers while vertically integrating and building out the O&M part of the business.
Now they have almost 100M Euro backlog with high margins and a developed operation/management service line, giving them recurring revenues, so FCF has gone positive and I expect it to stay there, although didn’t get to speak with management about this. Even if FCF goes negative again I’m not concerned, but if margins decrease and FCF goes negative, that’s when I’d become worried. Thanks again!